Republic of the Philippines
El derecho de abandono, si se
SUPREME COURT
Manila
EN BANC
G.R. No. L-47447-47449 October 29, 1941
TEODORO R. YANGCO, ETC., petitioner,
vs.
MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.
Powell & Vega for respondents.
MORAN, J.:
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner here,
Teodoro R. Yangco, left the port of Romblon on its retun trip to Manila. Typhoon signal No. 2 was then up, of
which fact the captain was duly advised and his attention thereto called by the passengers themselves before
the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to 7 inches below the
surface of the water. Baggage, trunks and other equipments were heaped on the upper deck, the hold being
packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and about one hundred sacks
of copra and some lumber. The passengers, numbering about 180, were overcrowded, the vessel's capacity
being limited to only 123 passengers. After two hours of sailing, the boat encountered strong winds and rough
seas between the islands of Banton and Simara, and as the waves splashed the ladies' dresses, the awnings
were lowered. As the sea became increasingly violent, the captain ordered the vessel to turn left, evidently to
return to port, but in the manuever, the vessel was caught sidewise by a big wave which caused it to capsize
and sink. Many of the passengers died in the mishap, among them being Antolin Aldaa and his son Victorioso,
husband and son, respectively, of Emilia Bienvenida who, together with her other children and a brother-in-
law, are respondents in G.R. No. 47447; Casiana Laserna, the daughter of respondents Manuel Laserna and P.A.
de Laserna in G.R. 47448; and Genaro Basaa, son of Filomeno Basaa, respondent in G.R. No. 47449. These
respondents instituted in the Court of First Instance of Capiz separate civil actions against petitioner here to
recover damages for the death of the passengers aforementioned. The court awarded the heirs of Antolin and
Victorioso Aldana the sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro Basana, also
P590. After the rendition of the judgment to this effcet, petitioner, by a verified pleading, sought to abandon th
evessel to the plainitffs in the three cases, together with all its equipments, without prejudice to his right to
appeal. The abandonment having been denied, an appeal was taken to the Court of Appeals, wherein all the
judgmnets were affirmed except that which sums was increased to P4,000. Petitioner, now deceased, appealed
and is here represented by his legal representative.
Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent,
notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held liable in
damages for the consequent death of its passengers? We are of the opinion and so hold that this question is
controlled by the provisions of article 587 of the Code of Commerce. Said article reads:
The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the
conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself
therefrom by abandoning the vessel with all her equipments and the freight he may have earned
during the voyage.
The provisions accords a shipowner or agent the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon "the vessel with all her equipments
and the freight it may have earned during the voyage." It is true that the article appears to deal only with the
limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care of
the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true
extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the
aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the
shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. Dr. Jose Ma.
Gonzalez de Echavarri y Vivanco, commenting on said article, said:
La letra del Codigo, en el articulo 587, presenta una gravisima cuestion.
atiende a lo escrito, solo se refiere a las indemnizaciones a que dierQe lugar la conducta del Capitan en
la custodia de los efectos que cargo en el buque.
Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas
de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para
fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:
"El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio
maritimo, que quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o
Capitan del buque, la garantia real del mismo, cualesquiera que sean las facultades o
atribuciones de que se hallen investidos." (Echavarri, Codigo de Comercio, Tomo 4, 2. a ed.,
pags. 483-484.)
A cursory examination will disclose that the principle of liomited liability of a shipowner or agent is provided
for in but three articles of the Code of Commerce article 587 aforequoted and article 590 and 837. Article
590 merely reiterates the principle embodied in article 587, applies the same principle in cases of collision,
and it has been observed that said article is but "a necessary consequences of the right to abandon the vessel
given to the shipowner in article 587 of the Code, and it is one of the many superfluities contained in the Code."
(Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect,
therefore, only articles 587 and 590 are the provisions conatined in our Code of Commerce on the matter, and
the framers of said code had intended those provisions to embody the universal principle of limited liability in
all cases. Thus, in the "Exposicon de Motivos" of the Code of Commerce, we read:
The present code (1829) does not determine the juridical status of the agent where such agent is not
himself the owner of the vessel. This omission is supplied by the proposed code, which provides in
accordance with the principles of maritime law that by agent it is to be understood the person
intrusted with the provisioning of the vessel, or the one who represents her in the port in which she
happens to be. This person is the only one who represents the vessel that is to say, the only one
who represents the interests of the owner of the vessel. This provision has therefore cleared the
doubt which existed as to the extent of the liability, both of the agent and of the owner of the vessel.
Such liability is limited by the proposed code to the value of the vessel and other things appertaining
thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in such a
comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi not only to
cases of collision but also to those of shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and lawful obligations of the captain and
the liability which he incurs on account of any unlawful act committed by him. In the first case, the
lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent
for the reason that such obligations arise from te the contract of agency (provided, however, that the
captain does not exceed his authority), while as to any liability incurred by the captain through his
unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to
the vessel and it does not extend further. For this reason the Code of Commerce makes the agent
liable to the extent of the value of the vessel, as the codes of the principal maritime nations
provide with the vessel, and not individually. Such is also the spirit of our Code.
The spirit of our code s accurately set forth in a treatise on maritime law, from which we deem
proper to quote the following as the basis of this decision:lawphil.net
"That which distinguishes the maritime from the civil law and even from the mercantile law
in general is the real and hypothecary nature of the former, and the many securities of
a real nature that maritime customs from time immemorial, the laws, the codes, and the
later jurisprudence, have provided for the protection of the various and conflicting interests
which are ventured and risked in maritime expeditions, such as the interests of the vessel
and of the agent, those of the owners of the cargo and consignees, those who salvage the
ship, those who make loans upon the cargo, those of the sailors and members of the crew as
to their wages, and those of a constructor as to repairs made to the vessel.
"As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2) the
right to retain the cargo and the embargo and detention of the vessel even in cases where
 the ordinary civil law would not allow more than a personal action against the debtor or
person liable. It will be observed that these rights are correlative, and naturally so, because
if the agent can exempt himself from liability by abandoning the vessel and freight money,
thus avoiding the possibility of risking his whole fortune in the business, it is also just that
his maritime creditor may for any reason attach the vessel itself to secure his claim without
waiting for a settlement of his rights by a final judgment, even to the prejudice of a third
person.
"This repeals the civil law to such an extent that, in certain cases, where the mortgaged
property islost no personal action lies against the owner or agent of the vessel. For instance,
where the vessel is lost the sailors and members of the crew cannot recover their wages; in
case of collision, the liability of the agent is limited as aforesaid, and in case of shipwreck,
those who loan their money on the vessel and cargo lose all their rights and cannot claim
reimbursement under the law.
"There are two reasons why it is impossible to do away with these privileges, to wit: (1) The
risk to which the thing is exposed, and (2) the real nature of the maritime law,
exclusively real, according to which the liability of the parties is limited to a thing which is
at the mercy of the waves. If the agent is only liable with the vessel and freight money and
both may be lost through the accidents of navigation it is only just that the maritime
creditor have some means to obviating this precarious nature of his rights by detaining the
ship, his only security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and which a purchaser of the same
would be obliged to respect and recognize are in addition to those existing in favor of the
State by virtue of the privileges which are granted to it by all the laws pilot, tonnate, and
port dues and other similar charges, the wages of the crew earned during the last voyage as
provided in article 646 of the Code of Commerce, salvage dues under article 842, the
indemnification due to the captain of the vessel in case his contract is terminated on
account of the voluntary sale of the ship and the insolvency of the owner as provided in
article 608, and all other liabilities arising from collisions under articles 837 and 838."
We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y Gella,
asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like principle of
limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc., said:
De las responsabilities que pueden resultar como consequencia del comercio maritimo, y no solo por
hechos propios sino tambien por las que se ocasionen por los del capitan y la tripulacion, responde
frente a tercero el naviero que representa el buque; pero el derecho maritimo es sobre todo
tradicional y siguiendo un viejo principio de la Edad Media la responsabilidad del naviero se organiza
de un modo especifico y particularisimo que no encuentra similar en el derecho general de las
obligaciones.
Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era prestar
un propietario su navio para que cargase en el mercancias determinada persona, y se hiciese a la mar,
yendo al frente de la expedicion un patron del buque, que llegado al puerto de destino se encargaba
de venderlas y retornaba al de salida despues de adquirir en aquel otros efectos que igualmente
revendia a su regreso, verificado lo cual los beneficios de la expedicion se repartian entre el dueo
del buque, el cargador y el capitan y tripulantes en la proporcion estipulada. El derecho maritimo
empezo a considerar la asociacion asi formada como una verdadera sociedad mercantil, de
responsabilidad limitada, y de acuerdo con los principios que gobiernan aquella en los casos de
accidentes, abordajes, naufragios, etc., se resolvia que el dueo del buque perdia la nave, el cargador
las mercancias embarcadas y el capitan y la tripulacion su trabajo, sin que en ningun caso el tercer
acreedor pudiese reclamar mayor cantidad de ninguno de ellos, porque su responsabilidad quedaba
limitada a lo que cada uno aporto a la sociedad. Recogidas estas ideas en el derecho comercial de
tiempos posteriores, la responsabilidad del naviero se edifico sobre aquellos principios, y derogando
la norma general civil de que del cumplimiento de sus obligaciones responde el deudor con todos sus
bienes presentes y futuros, la responsabilidad maritima se considero siempre limitada ipso jure al
patrimonio de mar. Y este es el origen de la regla trascendental de derecho maritimo segun la cual el
naviero se libera de toda responsabilidad abandonando el buque y el flete a favor de los acreedores.
From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:
Ahora bien: hasta donde se extiende esta responsabilidad del naviero? sobre que bienes pueden los
acreedores resarcirse? Esta es otra especialidad del Derecho maritimo; en el Derecho comun la
responsabilidad es limitada; tambien lo era en el antiguo Derecho maritimo romano; es daba la actio
exercitoria contra el exercitor navis sin ninguna restriccion, pero en la Edad Media una idea nueva se
introdujo en los usos maritimos. Las cargas resultantes de las expediciones maritimas se
consideraron limitadas por los propietarios de las naves a los valores comprometidos por ellos en
cada expedicion; se separo ficticiamente el patrimonio de los navieros en dos partes que todavia se
designan de una manera bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la
teoria de que esta era la que respondia solo de las deudas provinientes de los actos del capitan o de la
tripulacion, es decir, que el conjunto del patrimonio del naviero escaparia a estas cargas desde el
momento en que abandonara la nave y los fletes a los acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:
La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho comun de ser
responsable todo el que pone al frente de un establecimiento a una persona, de los daos o perjuicios
que ocasionare esta desempeando su cometido, y en que estando facultado el naviero para la
eleccion de capitan de la nave, viene a tener indirectamente culpa en la negligencia o actos de este
que o casionaron daos o perjuicios, puesto que no se aseguro de su pericia o buena fe. Limitase, sin
embargo, la responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes devengados
durante el viaje; porque no pudiendo vigilar de un modo directo e inmediato la conducta del capitan,
hubiera sido duro hacerla extensiva a todos sus bienes que podria comprometer el capitan con sus
faltas o delitos.
The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4, 259) and
Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be doubted on the
principle. It only remains to be noted that the rule of limited liability provided for in our Code of Commerce
reflects merely, or is but a restatement, imperfect though it is, of the almost universal principle on the subject.
While previously under the civil or common law, the owner of a vessel was liable to the full amount for
damages caused by the misconduct of the master, by the general maritime law of modern Europe, the liability
of the shipowner was subsequently limited to his interest in the vessel. (Norwich & N. Y. Trans. Co. v. Wright,
80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British Parliament upon the liability of
Englosh shipowners through a series of statutes beginning in 1734 with the Act of 7 George II, chapter 15. The
legislatures of Massachusetts and Maine followed suit in 1818 and 1821, and finally, Congress enacted the
Limited Liability Act of March 3, 1851, embodying most of the provisions contained in the British Statutes (see
24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes (sec. 183, Tit. 46, Code of Laws of U. S. A.)
reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability of the owner of any vessel, for any
embezzlement, loss, or destruction, by any person, of any property, goods, or merchandise, shipped
or put on board of such vessel, or for any loss, damage, or injury by collision, or for any act, matter or
thing, loss, damage, or forfeiture, done, occasioned, or incurred without the privity, or knowledge of
such owner or owners, shall in no case exceed the amount or value of the interest of such owner in
such vessel, and her freight then pending.
The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in
maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v. Williams, 152 U. S. 122; 58
C. J. 634.) And it is in that spirit that the American courts construed the Limited Liability Act of Congress
whereby the immunities of the Act were applied to claims not only for lost goods but also for injuries and "loss
of life of passengers, whether arising under the general law of admiralty, or under Federal or State statutes."
(The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360; Butler v. Boston & Savannah Steamship Co.,
32 Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed. 836.) The Supreme Court of the United States
in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-590, accounting for the history of the
principle, clinches our exposition of the supporting authorities:
The history of the limitation of liability of shipowners is matter of common knowledge. The learned
opinion ofJudge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to be desired on the
subject. He shows that it originated in the maritime law of modern Europe; that whilst the civil, as
well as the common law, made the owner responsible to the whole extent of damage caused by the
 wrongful act or negligence of the matter or crew, the maritime law only made then liable (if
personally free from blame) to the amount of their interest in the ship. So that, if they surrendered
the ship, they were discharged.
Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they
thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the
master and, therefore, in Holland, they had never observed the Roman Law on that subject, but had a
regulation that the ship owners should be bound no farther than the value of their ship and freight.
His words are: Navis et eorum quae in navi sunt," "the ship and goods therein." But he is speaking of
the owner's interest; and this, as to the cargo, is the freight thereon, and in that sense he is
understood by the commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec.
XIII. The maritime law, as codified in the celebrated French Ordonance de la Marine, in 1681,
expressed the rule thus: 'The proprietors of vessels shall be responsible for the acts of the master, but
they shall be discharged by abandoning the ship and freight.' Valin, in his commentary on this
passage, lib. 2, tit. 8, art. 2, after specifying certain engagements of the master which are binding on
the owners, without any limit of responsibility, such as contracts for the benefit of the vessel, made
during the voyage (except contracts of bottomry) says: "With these exceptions it is just that the
owner should not be bound for the acts of the master, except to the amount of the ship and freight.
Otherwise he would run the risk of being ruined by the bad faith or negligence of his captain, and the
apprehension of this would be fatal to the interests of navigation. It is quite sufficient that he be
exposed to the loss of his ship and of the freight, to make it his interest, independently of any goods
he may have on board to select a reliable captain." Pardessus says: 'The owner is bound civilly for all
delinquencies committed by the captain within the scope of his authority, but he may discharge
himself therefrom by abandoning the ship and freight; and, if they are lost, it suffices for his
discharge, to surrender all claims in respect of the ship and its freight," such as insurance, etc. Droit
Commercial, part 3, tit. 2, c. 3, sec. 2.
The same general doctrine is laid down by many other writers on maritime law. So that it is evident
that, by this law, the owner's liability was coextensive with his interest in the vessel and its freight,
and ceased by his abandonment and surrender of these to the parties sustaining loss.
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held civilly
liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions
or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total loss thereof
results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact that the ill-fated
steamshipNegros, as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil.,
541), and that the as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely, 32 Phil.,
541), and that the relationship between the petitioner and the passengers who died in the mishap rests on a
contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively
"real and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to
the insurance thereon, if any. In the instant case it does not appear that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with
law of not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle
ceremony.
Judgement is reversed and petitioner is hereby absolved of all the complaints, without costs.
Avancea, C.J., Abad Santos, Diaz, Laurel, Horrilleno, and Ozaeta, JJ., concur.
THIRD DIVISION 3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used
by the FIRST PARTY (referring to Roland) for the maximum period of two (2) years
AGUSTIN P. DELA TORRE, G.R. No. 160088
Petitioner, 4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said
vessel. [Underscoring Supplied]
- versus -
On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation [7](PTSC), represented
THE HONORABLE COURT OF APPEALS, by Roland, entered into a Contract of Agreement,[8] wherein the latter would charter LCT-Josephine retroactive
CRISOSTOMO G. CONCEPCION, RAMON BOY to May 1, 1984, under the following conditions:
LARRAZABAL, PHILIPPINE TRIGON SHIPYARD
CORPORATION, and ROLAND G. DELA TORRE, a. Chartered amount of the vessel 20,000.00 per month effective May 1, 1984;
Respondents.
x--------------------------------------x j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of
PHILIPPINE TRIGON SHIPYARD CORPORATION the vessel and the balance shall be paid every month in the amount of10,000.00, to be
and ROLAND G. DELA TORRE, deducted from the rental amount of the vessel;
Petitioners,
G.R. No. 160565 k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND
PARTY (PTSC/ Roland) has the option for first priority to purchase the vessel. If the
- versus - Present: SECOND PARTY (PTSC/Roland) refuses the offer of the FIRST PARTY (Concepcion),
shall give the SECOND PARTY (PTSC/Roland) enough time to turn over the vessel so as
CARPIO,* J. not to disrupt previous commitments;
VELASCO, JR., Chairperson,
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA ABAD, l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the
TORRE and RAMON BOY LARRAZABAL, MENDOZA, and event of the SECOND PARTY (PTSC/Roland) decide to stop operating;
Respondents. SERENO,* * JJ.
m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice
of such termination of contract;
Promulgated:
n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND
July 13, 2011 PARTY (PTSC/Roland); (Underscoring Supplied]

X ---------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:
These consolidated petitions[1] for review on certiorari seek to reverse and set aside the September
30, 2002 Decision[2] and September 18, 2003 Resolution[3] of the Court of Appeals(CA) in CA-G.R. CV No.
36035, affirming in toto the July 10, 1991 Decision[4] of the Regional Trial Court, Branch 60, Angeles
City (RTC). The RTC Decision in Civil Case No. 4609, an action for Sum of Money and Damages, ordered the
defendants, jointly and severally, to pay various damages to the plaintiff.
The Facts:
Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with
the Philippine Coast Guard. On February 1, 1984, Concepcion entered into a Preliminary Agreement [5] with
Roland de la Torre (Roland) for the dry-docking and repairs of the said vessel as well as for its charter
afterwards.[6] Under this agreement, Concepcion agreed that after the dry-docking and repair of LCT-Josephine,
it should be chartered for 10,000.00 per month with the following conditions:
1. The CHARTERER will be the one to pay the insurance premium of the vessel
2. The vessel will be used once every three (3) months for a maximum period of two (2)
weeks
On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a
single proprietorship owned by Rolands father, Agustin de la Torre (Agustin).[9]The following are the terms
and conditions of that Contract of Agreement:[10]
a. Chartered amount of the vessel 30,000.00 per month effective August, 1984;
b. Downpayment of the 50% upon signing of the contract and the balance every end of the
month;
c. Any cost for the additional equipment to be installed on the vessel will be borne by the
FIRST PARTY (PTSC/ Roland) and the cost of the equipment will be deductible from
the monthly rental of the vessel;
d. In the event the vessel is grounded or other [force majeure] that will make the vessel
non-opera[xx]ble, the rental of the vessel shall be suspended from the start until the
vessel will be considered operational;
e. The cost for the dry-docking and/or repair of vessel shall not exceed 200,000.00, any
excess shall be borne by the SECOND PARTY (TSL/Agustin);
f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the
duration of the usage;
g. All cost for the necessary repair of the vessel shall be on the account of the SECOND
PARTY (TSL/Agustin);
h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the
event the SECOND PARTY (TSL/Agustin) decides to stop operating;
 j. The FIRST PARTY (PTSC/Roland) will terminate the services of all vessels crew and the
SECOND PARTY (TSL/Agustin) shall have the right to replace and rehire the crew of
the vessel.
k. Insurance premium of the vessel will be divided equally between the FIRST PARTY
(PTSC/Rolando) and the SECOND PARTY (TSL/ Agustin). [Underscoring supplied]
On November 22, 1984, TSL, this time represented by Roland per Agustins Special Power of
Attorney,[11] sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo
consisting of sand and gravel to Leyte. The following were agreed upon in that contract, [12] to wit:
1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the
SECOND PARTY (Larrazabal) for and in consideration on the sum of FIVE THOUSAND
FIVE HUNDRED (5,500.00) PESOS, Philippine currency per day charter with the
following terms and conditions.
2. That the CHARTERER should pay 2,000.00 as standby pay even that will made (sic) the
vessel non-opera[xx]ble cause[d] by natur[al] circumstances.
3. That the CHARTERER will supply the consumed crude oil and lube oil per charter day.
4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and
unloading of cargo load on the vessel.
5. That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of
contract.
6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in
advance and the balance should be paid weekly. [Underscoring Supplied]
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel,
Leyte. The vessel was beached near the NDC Wharf. With the vessels ramp already lowered, the unloading of
the vessels cargo began with the use of Larrazabals payloader. While the payloader was on the deck of the LCT-
Josephine scooping a load of the cargo, the vessels ramp started to move downward, the vessel tilted and sea
water rushed in. Shortly thereafter, LCT-Josephine sank.[13]
Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that
negotiations were underway for the refloating of his vessel.[14] Unfortunately, this did not materialize.
For this reason, Concepcion was constrained to institute a complaint for Sum of Money and Damages
against PTSC and Roland before the RTC. PTSC and Roland filed their answer together with a third-party
complaint against Agustin. Agustin, in turn, filed his answer plus a fourth-party complaint against Larrazabal.
The latter filed his answer and counterclaim but was subsequently declared in default by the
RTC.[15] Eventually, the fourth-party complaint against Larrazabal was dismissed when the RTC rendered its
decision in favor of Concepcion on July 10, 1991.[16] In said RTC decision, the following observations were
written:
The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show:
(1) that the payloader was used to unload the cargo of sand and gravel; (2) that the
payloader had to go inside the vessel and scoop up a load; (3) that the ramp according to
Roland de la Torre, was not properly put into peak (sic) such that the front line will touch
the bottom, particularly will touch the sea x x x; (4) that the tires (of the payloader) will be
submerged to (sic) the sea; (5) that according to Sungayan the ramp of the vessel was
moving down; (6) that the payloader had to be maneuvered by its operator who dumped
the load at the side of the vessel; (7) that the dumping of the load changed the stability of
the vessel and tilted it to the starboard side; and (8) that the tilting caused the sliding of the
cargo toward that side and opened the manhole through which seawater rushed in.[17]
Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin, also
admitted at the trial that it was TSL/Agustin, through its crew, who was in-charge of LCT-Josephines operations
although the responsibility of loading and unloading the cargo was under Larrazabal. Thus, the RTC declared
that the efficient cause of the sinking of the LCT-JOSEPHINE was the improper lowering or positioning of the
ramp, which was well within the charge or responsibility of the captain and crew of the vessel.[18] The fallo of
the RTC Decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:
1. The defendants, Philippine Trigon Shipping Corporation and Roland de la
Torre, and the third-party defendant, Agustin de la Torre, shall pay
the plaintiff, jointly and severally, the sum of EIGHT HUNDRED
FORTY-ONE THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND
EIGHTY SIX CENTAVOS (841,386.86) as the value of the LCT
JOSEPHINE with interest thereon at the legal rate of 6% per annum
from the date of demand, that is from March 14, 1985, the date
when counsel for the defendant Philippine Trigon Shipyard
Corporation answered the demand of the plaintiff, until fully paid;
2. The defendants, Philippine Trigon Shipyard Corporation and Roland de
la Torre, shall pay to the plaintiff the sum of NINETY THOUSAND
PESOS (90,000.00) as unpaid rentals for the period from May 1,
1984, to November, 1984, and the sum of ONE HUNDRED SEVENTY
THOUSAND PESOS (170,000.00) as lost rentals from December,
1984, to April 30, 1986, with interest on both amounts at the rate of
6% per annum also from demand on March 14, 1985, until fully
paid;
3. The defendants and the third-party defendant shall likewise pay to the
plaintiff jointly and severally the sum of TWENTY-FIVE THOUSAND
PESOS (25,000.00) as professional fee of plaintiffs counsel plus
FIVE HUNDRED PESOS (500.00) per appearance of said counsel in
connection with actual trial of this case, the number of such
appearances to be determined from the records of this case;
4. The defendants counterclaim for the unpaid balance of plaintiffs
obligation for the dry-docking and repair of the vessel LCT
JOSEPHINE in the amount of TWENTY-FOUR THOUSAND THREE
HUNDRED FOUR PESOS AND THIRTY-FIVE CENTAVOS
(24,304.35), being valid, shall be deducted from the unpaid rentals,
with interest on the said unpaid balance at the rate of 6% per
annum from the date of the filing of the counter-claim on March 31,
1986;
5. The counter-claim of the defendants in all other respects, for lack of
merit, is hereby DISMISSED;
6. The fourth-party complaint against the fourth-party defendant, Ramon
Larrazabal, being without basis, is likewise DISMISSED; and
7. The defendants and third-party defendant shall pay the costs.
SO ORDERED.[19]
Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in agreementwith the
findings of the RTC, affirmed its decision in toto.
Still not in conformity with the CA findings against them, Agustin, PTSC and Roland came to this
Court through these petitions for review. In G.R. No. 160088, petitioner Agustin raises the following issues:
 AGUSTINS STATEMENT OF THE ISSUES
I THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF
THE SINKING OF LCT JOSEPHINE IS THE NEGLIGENCE OF THE PETITIONER (Agustin)
AND THE RESPONDENTS TRIGON (PTSC) AND DE LA TORRE (Roland).
II THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON
LARRAZABAL AS SOLELY LIABLE FOR THE LOSS AND SINKING OF LCT JOSEPHINE.
III THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN TAKING
JUDICIAL NOTICE OF THE CHARACTERISTICS OF THE LCT JOSEPHINE AND
PAYLOADER WITHOUT INFORMING THE PARTIES OF THEIR INTENTION.
IV THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND
SOLIDARILY LIABLE WITH THE RESPONDENTS TRIGON AND DE LA TORRE DESPITE
THE FACT THAT SUCH KIND OF LIABILITY IS NOT DULY ALLEGED IN THE
COMPLAINT OF RESPONDENT CONCEPCION AND NOT ONE OF THE ISSUES TRIED BY
THE PARTIES.
V THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED
ON CULPA CONTRACTUAL.
VI THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER FROM
LIABILITY BASED ON THE LIMITED LIABILITY RULE.
VII THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE
CODE OF COMMERCE ON THE LIABILITY OF THE SHIP CAPTAIN.[20]
On the other hand, in G.R. No. 160565, PTSC and Roland submit the following issues:
PTSC and ROLANDS STATEMENT OF THE ISSUES
I. DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE
PROVISIONS OF THE CIVIL CODE OF THE PHILIPPINES PARTICULARLY ON
CONTRACTS, LEASE, QUASI-DELICT AND DAMAGES INSTEAD OF THE
PROVISIONS OF THE CODE OF COMMERCE ON MARITIME COMMERCE IN
ADJUDGING PETITIONERS LIABLE TO PRIVATE RESPONDENT CONCEPCION.
II. DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE
FINDINGS OF FACT OF THE TRIAL COURT.
III. DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR IN EXCESS OF ITS JURISDICTION IN
APPRECIATING THE FACTS OF THE CASE.
IV. DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS
JOINTLY AND SEVERALLY LIABLE WITH RESPONDENT AGUSTIN DE LA
TORRE, ERRxx WHEN IT MADE FINDINGS OF FACT AND CONCLUSIONS OF
LAW WHICH ARE BEYOND THE ISSUES SET FORTH AND CONTEMPLATED IN
THE ORIGINAL PLEADINGS OF THE PARTIES.[21]
From the foregoing, the issues raised in the two petitions can be categorized as: (1) those referring to
the factual milieu of the case; (2) those concerning the applicability of the Code of Commerce, more
specifically, the Limited Liability Rule; and (3) the question on the solidary liability of the petitioners.
As regards the issues requiring a review of the factual findings of the trial court, the Court finds no
compelling reason to deviate from the rule that findings of fact of a trial judge, especially when affirmed by the
appellate court, are binding before this Court.[22] The CA, in reviewing the findings of the RTC, made these
observations:
We are not persuaded that the trial Court finding should be set aside. The Court a
quo sifted through the records and arrived at the fact that clearly, there was improper
lowering or positioning of the ramp, which was not at peak, according to de la Torre and
moving down according to Sungayan when the payloader entered and scooped up a load of
sand and gravel. Because of this, the payloader was in danger of being lost (submerged) and
caused Larrazabal to order the operator to go back into the vessel, according to de la Torres
version, or back off to the shore, per Sungayan. Whichever it was, the fact remains that the
ramp was unsteady (moving) and compelled action to save the payloader from submerging,
especially because of the conformation of the sea and the shore. x x x.
xxx
The contract executed on June 20, 1984, between plaintiff-appellee and
defendants-appellants showed that the services of the crew of the owner of the vessel were
terminated. This allowed the charterer, defendants-appellants, to employ their own. The
sub-charter contract between defendants-appellants Philippine Trigon Shipyard Corp. and
third-party defendant-appellant Trigon Shipping Lines showed similar provision where the
crew of Philippine Trigon had to be terminated or rehired by Trigon Shipping Lines. As to
the agreement with fourth-party Larrazabal, it is silent on who would hire the crew of the
vessel. Clearly, the crew manning the vessel when it sunk belonged to third-party
defendant-appellant. Hubart Sungayan, the acting Chief Mate, testified that he was hired by
Agustin de la Torre, who in turn admitted to hiring the crew. The actions of fourth-party
defendant, Larrazabal and his payloader operator did not include the operation of docking
where the problem arose.[23] [Underscoring supplied]
Similarly, the Court has examined the records at hand and completely agree with the CA that the
factual findings of the RTC are in order.
With respect to petitioners position that the Limited Liability Rule under the Code of Commerce
should be applied to them, the argument is misplaced. The said rule has been explained to be that of the real
and hypothecary doctrine in maritime law where the shipowner or ship agents liability is held as merely co-
extensive with his interest in the vessel such that a total loss thereof results in its extinction. [24] In this
jurisdiction, this rule is provided in three articles of the Code of Commerce. These are:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning the
vessel with all her equipment and the freight it may have earned during the voyage.
---
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of
their interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before
a notary, of the part of the vessel belonging to him.
---
 Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section, shall be understood as limited to the value of the vessel with all its appurtenances
and freightage served during the voyage.
Article 837 specifically applies to cases involving collision which is a necessary consequence of the
right to abandon the vessel given to the shipowner or ship agent under the first provision Article 587.
Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-owned
by several persons.[25] Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce is
Article 587. Now, the latter is quite clear on which indemnities may be confined or restricted to the value of
the vessel pursuant to the said Rule, and these are the indemnities in favor of third persons which may arise
from the conduct of the captain in the care of the goods which he loaded on the vessel. Thus, what is
contemplated is the liability to third persons who may have dealt with the shipowner, the agent or even the
charterer in case of demise or bareboat charter.
The only person who could avail of this is the shipowner, Concepcion. He is the very person whom
the Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a
defense. In Yangco v. Laserna,[26] this Court, through Justice Moran, wrote:
The policy which the rule is designed to promote is the encouragement of
shipbuilding and investment in maritime commerce.
x x x.
Grotius, in his law of War and Peace, says that men would be
deterred from investing in ships if they thereby incurred the
apprehension of being rendered liable to an indefinite amount by the
acts of the master, x x x.[27]
Later, in the case of Monarch Insurance Co., Inc. v. CA,[28] this Court, this time through Justice Sabino R.
De Leon, Jr., again explained:
No vessel, no liability, expresses in a nutshell the limited liability rule. The
shipowners or agents liability is merely coextensive with his interest in the vessel such that
a total loss thereof results in its extinction. The total destruction of the vessel extinguishes
maritime liens because there is no longer any res to which it can attach. This doctrine is
based on the real and hypothecary nature of maritime law which has its origin in the
prevailing conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these adverse conditions and
to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the
liability of the owner or agent arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any.[29]
In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be
supported and encouraged to pursue maritime commerce. Thus, it would be absurd to apply the Limited
Liability Rule against him who, in the first place, should be the one benefitting from the said rule. In
distinguishing the rights between the charterer and the shipowner, the case ofYueng Sheng Exchange and
Trading Co. v. Urrutia & Co.[30] is most enlightening. In that case, no less than Chief Justice Arellano wrote:
The whole ground of this assignment of errors rests on the proposition advanced
by the appellant company that the charterer of a vessel, under the conditions stipulated in
the charter party in question, is the owner pro hac vice of the ship and takes upon himself
the responsibilities of the owner.
xxx
If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of
the Cebu, then they must respond for the damages claimed, because the owner and the
agent are civilly responsible for the acts of the captain.
But G. Urrutia & Co. could not in any way exercise the powers or rights of an
agent. They could not represent the ownership of the vessel, nor could they, in their own
name and in such capacity, take judicial or extrajudicial steps in all that relates to
commerce; thus if the Cebu were attached, they would have no legal capacity to proceed to
secure its release; speaking generally, not even the fines could or ought to be paid by them,
unless such fines were occasioned by their orders. x x x.
The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia &
Co., as charterers of the vessel, did not put the latter in the place of the former, nor make
them agents of the owner or owners of the vessel. With relation to those agents, they
retained opposing rights derived from the charter party of the vessel, and at no time could
they be regarded by the third parties, or by the authorities, or by the courts, as being in the
place of the owners or the agents in matters relating to the responsibilities pertaining to the
ownership and possession of the vessel. x x x.[31]
In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step
into the shoes of the shipowner or even the ship agent because there remains conflicting rights between the
former and the real shipowner as derived from their charter agreement. The Court again quotes Chief Justice
Arellano:
Their (the charterers) possession was, therefore, the uncertain title of lease, not a
possession of the owner, such as is that of the agent, who is fully subrogated to the place of
the owner in regard to the dominion, possession, free administration, and navigation of the
vessel.[32]
Therefore, even if the contract is for a bareboat or demise charter where possession, free
administration and even navigation are temporarily surrendered to the charterer, dominion over the vessel
remains with the shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of
the former, can never set up the Limited Liability Rule against the very owner of the vessel. Borrowing the
words of Chief Justice Artemio V. Panganiban, Indeed, where the reason for the rule ceases, the rule itself does
not apply.[33]
The Court now comes to the issue of the liability of the charterer and the sub-charterer.
In the present case, the charterer and the sub-charterer through their respective contracts of
agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The vessel was likewise
manned by the charterer and later by the sub-charterers people. With the complete and exclusive
relinquishment of possession, command and navigation of the vessel, the charterer and later the sub-charterer
became the vessels owner pro hac vice. Now, and in the absence of any showing that the vessel or any part
thereof was commercially offered for use to the public, the above agreements/charter parties are that of a
private carriage where the rights of the contracting parties are primarily defined and governed by the
stipulations in their contract.[34]
Although certain statutory rights and obligations of charter parties are found in the Code of
Commerce, these provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed,
none of the provisions found in the Code of Commerce deals with the specific rights and obligations between
the real shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil Code
to supply the deficiency.[35] Thus, the RTC and the CA were both correct in applying the statutory provisions of
the New Civil Code in order to define the respective rights and obligations of the opposing parties.
Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion
for the dry-docking and repair of LCT-Josephine, is liable under Article 1189[36]of the New Civil Code. There is
no denying that the vessel was not returned to Concepcion after the repairs because of the provision in the
Preliminary Agreement that the same should be used by Roland for the first two years. Before the vessel could
be returned, it was lost due to the negligence of Agustin to whom Roland chose to sub-charter or sublet the
vessel.
 PTSC is liable to Concepcion under Articles 1665[37] and 1667[38] of the New Civil Code. As the
charterer or lessee under the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return WHEREFORE, the petitions are DENIED.
the thing leased and it was liable for the deterioration or loss of the same.
SO ORDERED.
Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under
Article 1651 of the New Civil Code.[39] Although he was never privy to the contract between PTSC and
Concepcion, he remained bound to preserve the chartered vessel for the latter. Despite his non-inclusion in the
complaint of Concepcion, it was deemed amended so as to include him because, despite or in the absence of
that formality of amending the complaint to include him, he still had his day in court [40] as he was in fact
impleaded as a third-party defendant by his own son, Roland the very same person who represented him in
the Contract of Agreement with Larrazabal.

(S)ince the purpose of formally impleading a party is to assure him a day in court,
once the protective mantle of due process of law has in fact been accorded a litigant,
whatever the imperfection in form, the real litigant may be held liable as a party. [41]

In any case, all three petitioners are liable under Article 1170 of the New Civil Code. [42]The necessity
of insuring the LCT-Josephine, regardless of who will share in the payment of the premium, is very clear under
the Preliminary Agreement and the subsequent Contracts of Agreement dated June 20, 1984 and August 1,
1984, respectively. The August 17, 1984 letter of Concepcions representative, Rogelio L. Martinez, addressed
to Roland in his capacity as the president of PTSC inquiring about the insurance of the LCT-Josephine as well as
reiterating the importance of insuring the said vessel is quite telling.

August 17, 1984

Mr. Roland de la Torre
President
Phil. Trigon Shipyard Corp.
Cebu City

Dear Sir:

In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I

wish to inquire regarding the insurance of said vessel to wit:

1. Name of Insurance Company

2. Policy No.
3. Amount of Premiums
4. Duration of coverage already paid

Please send a Xerox copy of policy to the undersigned as soon as possible.

In no case shall LCT JOSEPHINE sail without any insurance coverage.

Hoping for your (prompt) action on this regard.

Truly yours,
(sgd)ROGELIO L. MARTINEZ
Owners representative[43]

Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the
time when it was dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in
clear contravention of their respective agreements. Certainly, they should now all answer for the loss of the
vessel.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 74811 September 30, 1988
CHUA YEK HONG, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR OLIT, respondents.
Francisco D. Estrada for petitioner.
Purita Hontanosas-Cortes for private respondents.
MELENCIO-HERRERA, J.:
In this Petition for Review on certiorari petitioner seeks to set aside the Decision of respondent Appellate
Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano Guno, et al.," promulgated on 3 April 1986,
reversing the Trial Court and relieving private respondents (defendants below) of any liability for damages for
loss of cargo.
The basic facts are not disputed:
Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while private respondents
are the owners of the vessel, "M/V Luzviminda I," a common carrier engaged in coastwise trade from the
different ports of Oriental Mindoro to the Port of Manila.
In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the vessel "M/V
Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to Manila. Said cargo, however, did not
reach Manila because somewhere between Cape Santiago and Calatagan, Batangas, the vessel capsized and
sank with all its cargo.
On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental Mindoro, a
Complaint for damages based on breach of contract of carriage against private respondents (Civil Case No. R-
3205).
In their Answer, private respondents averred that even assuming that the alleged cargo was truly loaded
aboard their vessel, their liability had been extinguished by reason of the total loss of said vessel.
On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which follows:
WHEREFORE, in view of the foregoing considerations, the court believes and so holds that
the preponderance of evidence militates in favor of the plaintiff and against the defendants
by ordering the latter, jointly and severally, to pay the plaintiff the sum of P101,227.40
representing the value of the cargo belonging to the plaintiff which was lost while in the
custody of the defendants; P65,550.00 representing miscellaneous expenses of plaintiff on
said lost cargo; attorney's fees in the amount of P5,000.00, and to pay the costs of suit. (p.
30, Rollo).
On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of the Code of
Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private respondents'
liability, as ship owners, for the loss of the cargo is merely co-extensive with their interest in the vessel such
that a total loss thereof results in its extinction. The decretal portion of that Decision 1 reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby
REVERSED, and another one entered dismissing the complaint against defendants-
appellants and absolving them from any and all liabilities arising from the loss of 1,000
sacks of copra belonging to plaintiff-appellee. Costs against appellee.
(p. 19, Rollo).
Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has availed of the present
recourse.
The basic issue for resolution is whether or not respondent Appellate Court erred in applying the doctrine of
limited liability under Article 587 of the Code of Commerce as expounded in Yangco vs. Laserna, supra.
Article 587 of the Code of Commerce provides:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with
all the equipments and the freight it may have earned during the voyage.
The term "ship agent" as used in the foregoing provision is broad enough to include the ship owner (Standard
Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision, therefore, both the ship owner and
ship agent are civilly and directly liable for the indemnities in favor of third persons, which may arise from the
conduct of the captain in the care of goods transported, as well as for the safety of passengers
transported Yangco vs. Laserna, supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]).
However, under the same Article, this direct liability is moderated and limited by the ship agent's or ship
owner's right of abandonment of the vessel and earned freight. This expresses the universal principle of
limited liability under maritime law. The most fundamental effect of abandonment is the cessation of the
responsibility of the ship agent/owner (Switzerland General Insurance Co., Ltd. vs. Ramirez, L-48264,
February 21, 1980, 96 SCRA 297). It has thus been held that by necessary implication, the ship agent's or ship
owner's liability is confined to that which he is entitled as of right to abandon the vessel with all her equipment
and the freight it may have earned during the voyage," and "to the insurance thereof if any" (Yangco vs.
Lasema, supra). In other words, the ship owner's or agent's liability is merely co-extensive with his interest in
the vessel such that a total loss thereof results in its extinction. "No vessel, no liability" expresses in a nutshell
the limited liability rule. The total destruction of the vessel extinguishes maritime liens as there is no longer
any res to which it can attach (Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]).
As this Court held:
If the ship owner or agent may in any way be held civilly liable at all for injury to or death of
passengers arising from the negligence of the captain in cases of collisions or shipwrecks,
his liability is merely co-extensive with his interest in the vessel such that a total loss
thereof results in its extinction. (Yangco vs. Laserna, et al., supra).
The rationale therefor has been explained as follows:
The real and hypothecary nature of the liability of the ship owner or agent embodied in the
provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing
conditions of the maritime trade and sea voyages during the medieval ages, attended by
innumerable hazards and perils. To offset against these adverse conditions and to
encourage ship building and maritime commerce, it was deemed necessary to confine the
liability of the owner or agent arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any, so that if the ship owner or agent abandoned the ship,
equipment, and freight, his liability was extinguished. (Abueg vs. San Diego, 77 Phil. 730
[1946])
0
Without the principle of limited liability, a ship owner and investor in maritime commerce
would run the risk of being ruined by the bad faith or negligence of his captain, and the
apprehension of this would be fatal to the interest of navigation." Yangco vs. Lasema, supra).
0
As evidence of this real nature of the maritime law we have (1) the limitation of the liability
of the agents to the actual value of the vessel and the freight money, and (2) the right to
retain the cargo and the embargo and detention of the vessel even in cases where the
ordinary civil law would not allow more than a personal action against the debtor or person
liable. It will be observed that these rights are correlative, and naturally so, because if the
agent can exempt himself from liability by abandoning the vessel and freight money, thus
avoiding the possibility of risking his whole fortune in the business, it is also just that his
maritime creditor may for any reason attach the vessel itself to secure his claim without
waiting for a settlement of his rights by a final judgment, even to the prejudice of a third
person. (Phil. Shipping Co. vs. Vergara, 6 Phil. 284 [1906]).
The limited liability rule, however, is not without exceptions, namely: (1) where the injury or death to a
passenger is due either to the fault of the ship owner, or to the concurring negligence of the ship owner and the
captain (Manila Steamship Co., Inc. vs. Abdulhaman supra); (2) where the vessel is insured; and (3) in
workmen's compensation claims Abueg vs. San Diego, supra). In this case, there is nothing in the records to
show that the loss of the cargo was due to the fault of the private respondent as shipowners, or to their
concurrent negligence with the captain of the vessel.
What about the provisions of the Civil Code on common carriers? Considering the "real and hypothecary
nature" of liability under maritime law, these provisions would not have any effect on the principle of limited
liability for ship owners or ship agents. As was expounded by this Court:
In arriving at this conclusion, the fact is not ignored that the illfated, S.S. Negros, as a vessel
engaged in interisland trade, is a common carrier, and that the relationship between the
petitioner and the passengers who died in the mishap rests on a contract of carriage. But
assuming that petitioner is liable for a breach of contract of carriage, the exclusively 'real
and hypothecary nature of maritime law operates to limit such liability to the value of the
vessel, or to the insurance thereon, if any. In the instant case it does not appear that the
vessel was insured. (Yangco vs. Laserila, et al., supra).
Moreover, Article 1766 of the Civil Code provides:
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special laws.
In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof, the Code of
Commerce and other special laws are applied. Since the Civil Code contains no provisions regulating liability of
ship owners or agents in the event of total loss or destruction of the vessel, it is the provisions of the Code of
Commerce, more particularly Article 587, that govern in this case.
In sum, it will have to be held that since the ship agent's or ship owner's liability is merely co-extensive with
his interest in the vessel such that a total loss thereof results in its extinction (Yangco vs. Laserna, supra), and
none of the exceptions to the rule on limited liability being present, the liability of private respondents for the
loss of the cargo of copra must be deemed to have been extinguished. There is no showing that the vessel was
insured in this case.
WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.
SO ORDERED.
Paras, Padilla, Sarmiento and Regalado, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-51165 June 21, 1990
HEIRS OF AMPARO DE LOS SANTOS, HEIRS OF ERNANIE DELOS SANTOS, HEIRS OF AMABELLA DELOS
SANTOS, HEIRS OF LENNY DELOS SANTOS, HEIRS OF MELANY DELOS SANTOS, HEIRS OF TERESA
PAMATIAN, HEIRS OF DIEGO SALEM, AND RUBEN REYES, petitioners,
vs.
HONORABLE COURT OF APPEALS AND COMPANIA MARITIMA, respondents.
Severino Z. Macavinta, Jr. for petitioners.
Dinglasan Law Office for private respondent.
MEDIALDEA. J.:
This petition for review on certiorari seeks to set aside the decision of the Court of Appeals in CA-G.R. No.
58118-R affirming the decision in Civil Case No. 74593 of the then Court of First Instance (now Regional Trial
Court), Branch XI, Manila which dismissed the petitioners' claim for damages against Compania Maritima for
the injury to and death of the victims as a result of the sinking of M/V Mindoro on November 4, 1967.
The trial court found the antecedent facts to be as follows:
This is a complaint originally filed on October 21, 1968 (p. 1, rec.) and amended on October
24, 1968 (p. 16 rec.) by the heirs of Delos Santos and others as pauper litigants against the
Compania Maritima, for damages due to the death of several passengers as a result of the
sinking of the vessel of defendant, the M/V 'Mindoro', on November 4, 1967.
There is no dispute in the record that the M/V 'Mindoro' sailed from pier 8 North Harbor,
Manila, on November 2,1967 at about 2:00 (should have been 6:00 p.m.) in the afternoon
bound for New Washington, Aklan, with many passengers aboard. It appears that said
vessel met typhoon 'Welming' on the Sibuyan Sea, Aklan, at about 5:00 in the morning of
November 4, 1967 causing the death of many of its passengers, although about 136
survived.
Mauricio delos Santos declared that on November 2, 1967 he accompanied his common-law
wife, Amparo delos Santos, and children, namely: Romeo, Josie, Hernani, who was 10 years
old, Abella, 7 years old, Maria Lemia, 5 years old and Melany, 5 months old, to pier 8, North
Harbor, Manila, to board the M/V Mindoro 'bound for Aklan. It appears that Amparo delos
Santos and the aforesaid children brought all their belongings, including household utensils
valued at P 1,000.00, with the intention of living in Aklan permanently.
As already stated, the boat met typhoon 'Welming' and due to the strong waves it sank
causing the drowning of many passengers among whom were Amparo delos Santos and all
the aforesaid children. It appears also that Teresa Pamatian and Diego Salim, who were also
passengers also drowned. Plaintiff Ruben Reyes was one of the survivors. 'The plaintiffs
presented the birth and death certificates of Amparo delos Santos and the children (Exhs. 1,
I-1, J, J-1, K, K-1, L, L-1, 0 to S, pp. 180 to 194 rec.). They also presented copies of the
manifest of passengers of the M/V 'Mindoro' on November 2,1967 (Exhs. B & C, pp. 163 to
161 rec.).
Eliadora Crisostomo de Justo, one of the survivors, corroborated the testimony of Mauricio
delos Santos that he accompanied Amparo delos Santos and her children to the port to
board the M/V Mindoro. She is a cousin of Amparo delos Santos' husband. According to her,
when she boarded the second deck of the vessel, she saw about 200 persons therein. She
tried to see whether she could be accommodated in the third deck or first deck because the
second deck was very crowded. She admitted that she was not included in the manifest
because she boarded the boat without a ticket, but she purchased one in the vessel. She
testified further that the boat was not able to reach its destination due to its sinking. During
the typhoon before the vessel sunk, she was able to board a 'balsa'.
Ruben Reyes, the other survivor, declared that he paid for his ticket before boarding the
M/V Mindoro. At that time he had with him personal belongings and cash all in the amount
of P2,900.00. It appears that Felix Reyes Jakusalem, Teresa Pamatian and Amparo delos
Santos drowned during the sinking of the vessel. He was able to swim on (sic) an island and
was with the others, rescued later on and brought to the hospital. The survivors were then
taken ashore (Exh. M, p. 188, rec.).
Dominador Salim declared that Teresa Pamatian, his aunt and Diego Salim, his father,
drowned along with the sinking of the M/V Mindoro. Tins witness declared that he
accompanied both his father and his aunt to the pier to board the boat and at the time
Teresa Pamatian was bringing cash and personal belongings of about P250.00 worth. His
father brought with him P200.00 in cash plus some belongings. He admitted that when his
father boarded the vessel he did not have yet a ticket.
The plaintiffs further submitted in evidence a copy of a Radiogram stating among other
things that the MN Mindoro was loaded also with 3,000 cases of beer, one dump truck and
292 various goods (Exhs. D and D-1, p. 162 rec).
In alleging negligence on the part of the vessel, plaintiffs introduced in evidence a letter sent
to the Department of Social Welfare concerning the resurvey of the M/V Mindoro victims
(Exh. F, p. 169 rec.) and a telegram to the Social Welfare Administration (Exh. G, p. 170 rec.),
a resurvey of the M/V 'Mindoro' victims (Exh. H, p. 171 rec.), a complete list of the M/V
'Mindoro' victims (Exhs. H-1 to H-8, pp. 172179 rec.), a certified true copy of the Special
Permit to the Compania Maritima issued by the Bureau of Customs limiting the vessel to
only 193 passengers (Exh. X, p. 318 rec.).
It appears that in a decision of the Board of Marine Inquiry, dated February 2, 1970, it was
found that the captain and some officers of the crew were negligent in operating the vessel
and imposed upon them a suspension and/or revocation of their license certificates. It
appears, however, that this decision cannot be executed against the captain who perished
with the vessel (Exhs. E, E-1, E-1-A, E-2 to E-9, pp. 163- 168 rec.).
Upon agreement of the parties, the plaintiffs also introduced in evidence the transcript of
stenographic notes of the testimony of Boanerjes Prado before Branch I of this Court (Exh.
U, pp. 203-220) and that of Felimon Rebano in the same branch (Exh. V, pp. 225-260 rec.).
The defendant alleges that no negligence was ever established and, in fact, the shipowners
and their officers took all the necessary precautions in operating the vessel. Furthermore,
the loss of lives as a result of the drowning of some passengers, including the relatives of the
herein plaintiff, was due to force majeure because of the strong typhoon 'Welming.' It
appears also that there was a note of marine protest in connection with the sinking of the
vessel as substantiated by affidavits (Exhs. 3, 3-A, 3-B, 3-C, 3-D, 3-E, 3-F and 3-G rec.). On
this score Emer Saul, member of the PC Judge Advocate General's Office, brought to Court
records of this case which were referred to their office by the Board of Marine Inquiry.
According to him the decision referred to by the plaintiffs was appealed to the Department
of National Defense, although he did not know the result of the appeal. At any rate, he knew
that the Department of National Defense remanded the case to the Board of Marine Inquiry
for further investigation. In the second indorsement signed by Efren I. Plana,
Undersecretary of National Defense, it is stated, among other things, that the hearings of the
Board of Marine Inquiry wherein the Philippine Coast Guard made the decision lacked the
necessary quorum as required by Section 827 of the Tariff and Customs Code. Moreover, the
decision of the Commandant of the Philippine Coast Guard relied principally on the findings
reached by the Board of Officers after an ex-parte investigation especially in those aspects
unfavorable to the captain (Exh. 1, folder of exhibits).
It appears also that there were findings and recommendations made by the Board of Marine
Inquiry, dated March 5, 1968, recommending among other things that the captain of the
M/V 'Mindoro,' Felicito Irineo, should be exonerated. Moreover, Captain Irineo went down
with the vessel and his lips are forever sealed and could no longer defend himself. This body
also found that the ship's compliment (sic) and crew were all complete and the vessel was
in seaworthy condition. If the M/V Mindoro' sank, it was through force majeure (Exhs. 2 & 2-
A, folder of exhibits).
 Defendant also introduced in evidence the transcripts of stenographic notes of the
testimony of Francisco Punzalan, marine officer, as well as of Abelardo F. Garcia, Harbor
Pilot in Zamboanga City, in Civil Case No. Q-12473 of Branch XXVIII, Court of First Instance
of Rizal, Quezon City Branch (Exhs. 3-H & 10-H, folder of exhibits), and of Arturo Ilagan,
boat captain, in Civil Case No. Q-1 5962 of Branch V, of the same Court (Exh. 9 folder of
exhibits).
It appears that five other vessels left the pier at Manila on November 2, 1967, aside from the
M/V Mindoro' (Exhs 4 & 4-A). A certification of the Weather Bureau indicated the place of
typhoon 'Welming' on November 2, 1967 (Exh. 6). A certification of the shipyard named El
Varadero de Manila stated among other things that the M/V 'Mindoro' was dry-docked from
August 25 to September 6, 1967 and was found to be in a seaworthy condition (Exh. 5), and
that the said M/V 'Mindoro' was duly inspected by the Bureau of Customs (Exhs. 7, 7-A & 7-
B). Another certification was introduced stating among other things that the Bureau of
Customs gave a clearance to the M/V 'Mindoro' after inspection (Exh. 8 folder of exhibits).
(CFI Decision, Records, pp. 468-471)
On the basis of these facts, the trial court sustained the position of private respondent Compania Maritima
(Maritima, for short) and issued a decision on March 27, 1974, to wit:
WHEREFORE, the Court finds that in view of lack of sufficient evidence, the case be, as it is
hereby DISMISSED.
For lack of evidence, the counterclaim is also hereby DISMISSED.
IT IS SO ORDERED. (Records, p. 474)
Forthwith, the petitioners' heirs and Reyes brought an appeal to the Court of Appeals. As earlier mentioned,
the appellate court affirmed the decision on appeal. While it found that there was concurring negligence on the
part of the captain which must be imputable to Maritima, the Court of Appeals ruled that Maritima cannot be
held liable in damages based on the principle of limited liability of the shipowner or ship agent under Article
587 of the Code of Commerce.
The heirs and Reyes now come to Us with the following assignment of errors:
ERROR I
THE HONORABLE RESPONDENT COURT OF APPEALS ERRED IN NOT CONCENTRATING TO
(sic) THE PROVISION OF LAW IN THE NEW CIVIL CODE AS EXPRESSED) IN,
Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws.
ERROR II
RESPONDENT COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF THE
LOWER COURT OF ORIGIN AFTER FINDING A SERIES OF FAULTS AND NEGLIGENCE AND
IN NOT ORDERING ITS CO-RESPONDENT COMPANIA MARITIMA TO PAY THE DAMAGES IN
ACCORDANCE WITH THE LAW.
ERROR III
THE HONORABLE RESPONDENT COURT OF APPEALS ERRED TO NOTE, OBSERVE AND
COMPREHEND THAT ART. 587 OF THE CODE OF COMMERCE IS ONLY FOR THE
GOODS WHICH THE VESSEL CARRIED AND DO NOT INCLUDE PERSONS. (Rollo, p. 8)
The petition has merit. At the outset, We note that there is no dispute as to the finding of the captain's
negligence in the mishap. The present controversy centers on the questions of Maritima's negligence and of
the application of Article 587 of the Code of Commerce. The said article provides:
Art. 587. The ship agent shall also be civilly liable for indemnities in favor of third persons
which may arise from the conduct of the captain in the care of the goods which he loaded on
the vessel, but he may exempt himself therefrom by abandoning the vessel with all her
equipments and the freight it may have earned during the voyage.
Under this provision, a shipowner or agent has the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon-"the vessel with all her equipments and
the freight it may have earned during the voyage" (Yangco v. Laserna, et al., 73 Phil. 330, 332).
Notwithstanding the passage of the New Civil Code, Article 587 of the Code of Commerce is still good law. The
reason lies in the peculiar nature of maritime law which is 94 exclusively real and hypothecary that operates
to limit such liability to the value of the vessel, or to the insurance thereon, if any (Yangco v. Laserna, Ibid). As
correctly stated by the appellate court, "(t)his rule is found necessary to offset against the innumerable
hazards and perils of a sea voyage and to encourage shipbuilding and marine commerce. (Decision, Rollo, p.
29). Contrary to the petitioners' supposition, the limited liability doctrine applies not only to the goods but also
in all cases like death or injury to passengers wherein the shipowner or agent may properly be held liable for
the negligent or illicit acts of the captain (Yangco v. Laserna, Ibid). It must be stressed at this point that Article
587 speaks only of situations where the fault or negligence is committed solely by the captain. In cases where
the shipowner is likewise to be blamed, Article 587 does not apply (see Manila Steamship Co., Inc. v.
Abdulhanan, et al., 100 Phil. 32, 38). Such a situation will be covered by the provisions of the New Civil Code on
Common Carriers. Owing to the nature of their business and for reasons of public policy, common carriers are
tasked to observe extraordinary diligence in the vigilance over the goods and for the safety of its passengers
(Article 1733, New Civil Code). Further, they are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances (Article 1755, New Civil Code). Whenever death or injury to a passenger occurs, common
carriers are presumed to have been at fault or to have acted negligently unless they prove that they observed
extraordinary diligence as prescribed by Articles 1733 and 1755 (Article 1756, New Civil Code).
Guided by the above legal provisions, We painstakingly reviewed the records of the case and found imprints of
Maritima's negligence which compel Us to reverse the conclusion of the appellate court.
Maritima claims that it did not have any information about typhoon 'Welming' until after the boat was already
at sea. Modem technology belie such contention. The Weather Bureau is now equipped with modern apparatus
which enables it to detect any incoming atmospheric disturbances. In his summary report on tropical cyclone
'Welming' which occurred within the Philippine Area of Responsibility, Dr. Roman L. Kintanar, Weather
Bureau Director, stated that during the periods of November 15, 1967, the Bureau issued a total of seventeen
(17) warnings or advisories of typhoon 'Welming' to shipping companies. Additionally, he reported that:
By 11:15 a.m. of November lst, or in less than twenty four hours, the storm intensified into a
typhoon. It was by then located at 8.7 N 137.3 E with sea level pressure of 978 millibars, an
eye diameter of about 18.53 kilometers and a maximum surface wind of 139 kilometers per
hour. "As it moved along in the open sea, it intensified further and by 11.07 a.m. of
November 2, when its center was at 103 N 131.4 E, it had attained surface winds of about
240 kilometers per hour. ... (Exh. Z, p. 131, Index of Exhibits, p. 11 5, Emphasis supplied).
Considering the above report and the evidence on record showing the late departure of the ship at 6:00 p.m.
(instead of the scheduled 2:00 p.m. departure) on November 2, 1967, We find it highly improbable that the
Weather Bureau had not yet issued any typhoon bulletin at any time during the day to the shipping companies.
Maritima submitted no convincing evidence to show this omission. It's evidence showing the Weather
Bureau's forecast of November 3, 1967 is not persuasive. It merely indicated the weather bulletin of that day.
Nowhere could We find any statement therein from the Weather Bureau that it had not issued any forecast on
November I and 2, 1967 (Exh. 6, Records, p. 257). Significantly, the appellate court found that the ship's
captain through his action showed prior knowledge of the typhoon. The court said:
... It cannot be true that he was apprised of the typhoon only at about 11:00 o'clock the
following morning on November 3, 1967 when the Weather report was transmitted to him
from the Weather Bureau at which time he plotted its position. For in his radiogram sent to
defendant-appellee's office in Manila as early as 8:07 in the morning of November 3, 1967
(Exh. D) he states in the concluding portion 'still observing weather condition.' thereby
implicitly suggesting that he had known even before departure of the unusual weather
condition. ... (Decision, Rollo, p. 26)
If the captain knew of the typhoon beforehand, it is inconceivable for Maritima to be totally in the dark of
'Welming.' In allowing the ship to depart late from Manila despite the typhoon advisories, Maritima displayed
lack of foresight and minimum concern for the safety of its passengers taking into account the surrounding
circumstances of the case.
While We agree with the appellate court that the captain was negligent for overloading the ship, We, however,
rule that Maritima shares equally in his negligence. We find that while M/V Mindoro was already cleared by
the Bureau of Customs and the Coast Guard for departure at 2:00 p.m. the ship's departure was, however,
delayed for four hours. Maritima could not account for the delay because it neither checked from the captain
the reasons behind the delay nor sent its representative to inquire into the cause of such delay. It was due to
this interim that the appellate court noted that "(i)ndeed there is a great probability that unmanifested cargo Reyes' claim for moral damages cannot be granted inasmuch as the same is not recoverable in damage action
(such as dump truck, 3 toyota cars, steel bars, and 6,000 beer cases) and passengers (about 241 more than the based on the breach of contract of transportation under Articles 2219 and 2220 of the New Civil Code except
authorized 193 passengers) were loaded during the four (4) hour interval" (Decision, p. 13, Rollo, p. 26). (1) where the mishap resulted in the death of a passenger and (2) where it is proved that the carrier was guilty
Perchance, a closer supervision could have prevented the overloading of the ship. Maritima could have of fraud or bad faith, even if death does not result (Rex Taxicab Co., Inc. v. Bautista, 109 Phil. 712). The
directed the ship's captain to immediately depart in view of the fact that as of 11:07 in the morning of exceptions do not apply in this case since Reyes survived the incident and no evidence was presented to show
November 2, 1967, the typhoon had already attained surface winds of about 240 kilometers per hour. As the that Maritima was guilty of bad faith. Mere carelessness of the carrier does not per se constitute or justify an
appellate court stated, '(v)erily, if it were not for have reached (its) destination and this delay, the vessel could inference of malice or bad faith on its part (Rex Taxicab Co., Inc. v. Bautista, supra).
thereby have avoided the effects of the storm" (Decision, Rollo p. 26). This conclusion was buttressed by Anent the claim for exemplary damages, We are not inclined to grant the same in the absence of gross or
evidence that another ship, M/V Mangaren, an interisland vessel, sailed for New Washington, Aklan on reckless negligence in this case.
November 2, 1967, ahead of M/V Mindoro and took the same route as the latter but it arrived safely (Exh. BB- As regards the claim for attorney's fees, the records reveal that the petitioners engaged the services of a lawyer
2, Index of Exhibits, pp. 143-144 and Exh. 4-A, Ibid, p. 254). and agreed to pay the sum of P 3,000.00 each on a contingent basis (see TSN'S, July 21, 1971, p. 24; November
Maritima presents evidence of the seaworthy condition of the ship prior to its departure to prove that it 3, 1971, pp. 18 and 29). In view hereof, We find the sum of P 10,000.00 as a reasonable compensation for the
exercised extraordinary diligence in this case. M/V Mindoro was drydocked for about a month. Necessary legal services rendered.
repairs were made on the ship. Life saving equipment and navigational instruments were installed. ACCORDINGLY, the appealed decision is hereby REVERSED and judgment is hereby rendered sentencing the
While indeed it is true that all these things were done on the vessel, Maritima, however, could not present private respondent to pay the following: (1) P30,000.00 as indemnity for death to the heirs of each of the
evidence that it specifically installed a radar which could have allowed the vessel to navigate safely for shelter victims; (2) P10,000.00 as moral damages to the heirs of each of the victims; (3) P6,805.00 as actual damages
during a storm. Consequently, the vessel was left at the mercy of ''Welming' in the open sea because although it divided among the petitioners as follows: heirs of Amparo Delos Santos and her deceased children, P2,000.00;
was already in the vicinity of the Aklan river, it was unable to enter the mouth of Aklan River to get into New heirs of Teresa Pamatian, P450.00; heirs of Diego Salem, P400.00; and Ruben Reyes, P2,955.00; (4) P10,000.00
Washington, Aklan due to darkness and the Floripon Lighthouse at the entrance of the Aklan River was not as attorney's fees; and (5) the costs.
functioning or could not be seen at all (Exh. 3-H, Index of Exhibits, p. 192-195; see also Exh. 2-A, Ibid, p. 160). SO ORDERED.
Storms and typhoons are not strange occurrences. In 1967 alone before 'Welming,' there were about 17 Narvasa (Chairman), Cruz, Gancayco and Grio-Aquino, JJ., concur.
typhoons that hit the country (Exh. M, Index of Exhibits, p. 115), the latest of which was typhoon Uring which
occurred on October 20-25, which cost so much damage to lives and properties. With the impending threat of
'Welming,' an important device such as the radar could have enabled the ship to pass through the river and to
safety.
The foregoing clearly demonstrates that Maritima's lack of extraordinary diligence coupled with the
negligence of the captain as found by the appellate court were the proximate causes of the sinking of M/V
Mindoro.
Hence, Maritima is liable for the deaths and injury of the victims. amount of With the above finding, We now
come to the damages due to the petitioners. Ordinarily, We would remand the case to the trial court for the
reception of evidence. Considering however, that this case has been pending for almost twenty-three (23)
years now and that since all the evidence had already been presented by both parties and received by the trial
court, We resolve to decide the corresponding damages due to petitioners (see Samal v. Court of Appeals, 99
Phil. 230; Del Castillo v. Jaymalin, L-28256, March 17, 1982, 112 SCRA 629).
In their complaint filed with the Court of First Instance, petitioners prayed for moral, actual and exemplary
damages, as well as for attorney's fees plus costs.
Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the death of a
passenger caused by the breach of contract by a common carrier is at least three thousand pesos (P3,000.00).
The prevailing jurisprudence has increased the amount of P3,000.00 to P30,000.00 (De Lima v. Laguna
Tayabas Co., L-35697-99, April 15, 1988, 160 SCRA 70). Consequently, Maritima should pay the civil indemnity
of P30,000.00 to the heirs of each of the victims. For mental anguish suffered due to the deaths of their
relatives, Maritima should also pay to the heirs the sum of P10,000.00 each as moral damages.
In addition, it was proven at the trial that at the time of death, (1) Amparo delos Santos had with her cash in
the sum of P1,000.00 and personal belongings valued at P500.00; (2) Teresa Pamatian, cash in the sum of
P250.00 and personal belongings worth P200.00; and (3) Diego Salem, cash in the sum of P200.00 and
personal belongings valued at P100.00. Likewise, it was established that the heirs of Amparo delos Santos and
her deceased children incurred transportation and incidental expenses in connection with the trial of this case
in the amount of P500.00 while Dominador Salem, son of victim Diego Salem and nephew of victim Teresa
Pamatian spent about P100.00 for expenses at the trial. With respect to petitioner Reyes, the evidence shows
that at the time of the disaster, he had in his possession cash in the sum of P2,900.00 and personal belongings
worth P100.00. Further, due to the disaster, Reyes was unable to work for three months due to shock and he
was earning P9.50 a day or in a total sum of P855.00. Also, he spent about P100.00 for court expenses. For
such losses and incidental expenses at the trial of this case, Maritima should pay the aforestated amounts to
the petitioners as actual damages.
Republic of the Philippines In effect appellant asks us to find that the documents appearing in the record do not constitute chattel
SUPREME COURT mortgages or at least to gloss over the failure to include the affidavit of good faith made a requisite for a good
Manila chattel mortgage by the Chattel Mortgage Law. Counsel would further have us disregard article 585 of the
EN BANC Code of Commerce, but no reason is shown for holding this article not in force. Counsel would further have us
G.R. No. L-41506 March 25, 1935 revise doctrines heretofore announced in a series of cases, which it is not desirable to do since those principles
PHILIPPINE REFINING CO., INC., plaintiff-appellant, were confirmed after due liberation and constitute a part of the commercial law of the Philippines. And finally
vs. counsel would have us make rulings on points entirely foreign to the issues of the case. As neither the facts nor
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO., defendants. the law remains in doubt, the seven assigned errors will be overruled.
JOSE COROMINAS, in his capacity as assignee of the estate of the insolvent Francisco Jarque,appellee. Judgment affirmed, the costs of this instance to be paid by the appellant.
Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for appellant. Avancea, C.J., Street, Villa-Real, Abad Santos, Hull, Vickers, Imperial, Butte, and Goddard, JJ., concur.
D.G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.:
First of all the reason why the case has been decided by the court in banc needs explanation. A motion was
presented by counsel for the appellant in which it was asked that the case be heard and determined by the
court sitting in banc because the admiralty jurisdiction of the court was involved, and this motion was granted
in regular course. On further investigation it appears that this was error. The mere mortgage of a ship is a
contract entered into by the parties to it without reference to navigation or perils of the sea, and does not,
therefore, confer admiralty jurisdiction. (Bogart vs. Steamboat John Jay [1854], 17 How., 399.)
Coming now to the merits, it appears that on varying dates the Philippine Refining Co., Inc., and Francisco
Jarque executed three mortgages on the motor vessels Pandan and Zaragoza. These documents were recorded
in the record of transfers and incumbrances of vessels for the port of Cebu and each was therein denominated
a "chattel mortgage". Neither of the first two mortgages had appended an affidavit of good faith. The third
mortgage contained such an affidavit, but this mortgage was not registered in the customs house until May 17,
1932, or within the period of thirty days prior to the commencement of insolvency proceedings against
Francisco Jarque; also, while the last mentioned mortgage was subscribed by Francisco Jarque and M. N. Brink,
there was nothing to disclose in what capacity the said M. N. Brink signed. A fourth mortgage was executed by
Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and was entered in the chattel mortgage
registry of the register of deeds on May 12, 1932, or again within the thirty-day period before the institution of
insolvency proceedings. These proceedings were begun on June 2, 1932, when a petition was filed with the
Court of First Instance of Cebu in which it was prayed that Francisco Jarque be declared an insolvent debtor,
which soon thereafter was granted, with the result that an assignment of all the properties of the insolvent was
executed in favor of Jose Corominas.
On these facts, Judge Jose M. Hontiveros declined to order the foreclosure of the mortgages, but on the
contrary sustained the special defenses of fatal defectiveness of the mortgages. In so doing we believe that the
trial judge acted advisedly.
Vessels are considered personal property under the civil law. (Code of Commerce, article 585.) Similarly under
the common law, vessels are personal property although occasionally referred to as a peculiar kind of personal
property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000; Atlantic Maritime Co vs. City of Gloucester [1917],
117 N. E., 924.) Since the term "personal property" includes vessels, they are subject to mortgage agreeably to
the provisions of the Chattel Mortgage Law. (Act No. 1508, section 2.) Indeed, it has heretofore been accepted
without discussion that a mortgage on a vessel is in nature a chattel mortgage. (McMicking vs. Banco Espaol-
Filipino [1909], 13 Phil., 429; Arroyo vs. Yu de Sane [1930], 54 Phil., 511.) The only difference between a
chattel mortgage of a vessel and a chattel mortgage of other personalty is that it is not now necessary for a
chattel mortgage of a vessel to be noted n the registry of the register of deeds, but it is essential that a record of
documents affecting the title to a vessel be entered in the record of the Collector of Customs at the port of
entry. (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de Sane, supra.) Otherwise a mortgage on
a vessel is generally like other chattel mortgages as to its requisites and validity. (58 C.J., 92.)
The Chattell Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a good
chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and
recorded therewith. The absence of the affidavit vitiates a mortgage as against creditors and subsequent
encumbrancers. (Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil., 216; Benedicto de Tarrosa vs. F. M. Yap Tico
& Co. and Provincial Sheriff of Occidental Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of
a vessel wherein the affidavit of good faith required by the Chattel Mortgage Law is lacking, is unenforceable
against third persons.
Republic of the Philippines WHEREFORE, foregoing premises considered, the decision of the court a quo insofar as
SUPREME COURT herein defendant-appellant is concerned is REVERSED It is hereby ordered that the
Manila complaint against herein defendant-appellant be dismissed. No costs. (Rollo, p. 50)
THIRD DIVISION
Reconsideration of the decision was denied in a resolution dated May 23, 1988.
G.R. No. 83613 February 21, 1990
FIREMAN'S FUND INSURANCE CO., petitioner, Hence, the present recourse.
vs. The petitioner raises this lone assignment of error:
METRO PORT SERVICE, INC., (Formerly E. Razon, Inc.), respondent. THE HONORABLE COURT OF APPEALS ERRED IN LIMITING LIABILITY SOLELY ON CO-
Dollete, Blanco, Ejercito & Associates for petitioner. DEFENDANT MAERSK LINES, CONTRARY TO THE FINDINGS OF FACTS OF THE TRIAL
Cruz, Durian, Agabin, Atienza, Alday & Tuason for respondent. COURT A QUO AND OTHER FACTORS SHOWING CLEAR JOINT LIABILITY OF DEFENDANTS
GUTIERREZ, JR., J.: IN SOLIDUM.
This is a petition for review of the decision and resolution denying reconsideration of the Court of Appeals in There is merit in this petition.
CA-G.R. CV No. 00673 entitled "Fireman's Fund Insurance Co. v. Maersk Line, Compaia General de Tabacos de This Court has held in a number of cases that findings of fact of the Court of Appeals are, in general, conclusive
Filipinas and E. Razon, Inc." on the Supreme Court when supported by the evidence on record. The rule is not absolute, however, and
The facts are as follows: allows exceptions, which we find present in the case at bar. The respondent court's findings of facts are
Vulcan Industrial and Mining Corporation imported from the United States several machineries and equipment contrary to those of the trial court and appear to be contradicted by the evidence on record thus calling for our
which were loaded on board the SIS Albert Maersk at the port of Philadelphia, U.S.A., and transhipped for review. (Metro Port Service, Inc. v. Court of Appeals, 131 SCRA 365 [1984]).
Manila through the vessel S/S Maersk Tempo. In absolving the ARRASTRE, the respondent Court ruled that although Librando was an employee of the
The cargo which was covered by a clean bill of lading issued by Maersk Line and Compania General de Tabacos ARRASTRE, since he was included in its payroll, he was technically and strictly an employee of Maersk Line in
de Filipinas (referred to as the CARRIER) consisted of the following: this particular instance when he drove the tractor admittedly owned by the foreign shipping line. The Court
xxx xxx xxx ruled that he received instructions not from Metro Port but from Maersk Line relative to this job. He was
1 piece truck mounted core drill performing a duty that properly pertained to Maersk Line which, for lack of a tractor operator, had to get or
1 piece trailer mounted core drill hire from the ARRASTRE as per their management contract. Nevertheless, Librando was not remiss in his duty
1 (40') container of 321 pieces steel tubings as tractor-driver considering that the proximate and direct cause of the damage was the absence of twist locks
1 (40') container of 170 pieces steel tubings in the rear end of the chassis which Maersk Line failed to provide. The respondent court thereby placed the
1 (40') container of 13 cases, 3 crates, 2 pallets and 26 mining machinery parts. (Rollo, p. 4) entire burden of liability on the owner of the Chassis which in this case was the foreign shipping company,
The shipment arrived at the port of Manila on June 3, 1979 and was turned over complete and in good order Maersk Line.
condition to the arrastre operator E. Razon Inc. (now Metro Port Service Inc. and referred to as the The foregoing conclusion disregarded the pertinent findings of facts made by the lower court which are
ARRASTRE). supported by the evidence on record, to wit:
At about 10:20 in the morning of June 8, 1979, a tractor operator, named Danilo Librando and employed by the 1. The accident occurred while the cargoes were in the custody of the arrastre operator.
ARRASTRE, was ordered to transfer the shipment to the Equipment Yard at Pier 3. While Librando was 2. The tractor operator was an employee of the arrastre operator.
maneuvering the tractor (owned and provided by Maersk Line) to the left, the cargo fell from the chassis and xxx xxx xxx
hit one of the container vans of American President Lines. It was discovered that there were no twist lock at 4. By the management contract inasmuch as the foreign shipping company has no tractor
the rear end of the chassis where the cargo was loaded. operator in its employ, the arrastre provided the operator.
There was heavy damage to the cargo as the parts of the machineries were broken, denied, cracked and no xxx xxx xxx
longer useful for their purposes. 8. It was likewise the responsibility of the tractor operator, an employee of the arrastre
The value of the damage was estimated at P187,500.00 which amount was paid by the petitioner insurance operator to inspect the chassis and tractor before driving the same, but which obligation the
company to the consignee, Vulcan Industrial and Mining Corporation. operator failed to do.
The petitioner, under its subrogation rights, then filed a suit against Maersk Line, Compania General de 9. It was also the responsibility of the supervisor in the employ of the arrastre operator to
Tabacos (as agent) and E. Razon, Inc., for the recovery of the amount it paid the assured under the covering see that their men complied with their respective tasks, which included the examination if
insurance policy. On October 26, 1980, the trial court rendered judgment, the decretal portion of which reads the chassis has twist lock. (Rollo, pp. 44-45)
as follows: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
xxx xxx xxx warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]). The relationship between the consignee
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v.
defendants by ordering the latter to pay, jointly and severally, the plaintiff the sum of Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods
P187,500.00, with legal interest thereon from August 29, 1980 until full payment thereof. that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves
Defendants are also ordered to pay, in solidum, the sum of P10,000.00 as attorney's fees to upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and obligated to deliver
the plaintiff, and to pay the costs of this suit. the goods in good condition to the consignee.
There shall be no award for exemplary damages in favor of the plaintiff, for the reason that In general, the nature of the work of an arrastre operator covers the handling of cargoes at piers and wharves
defendants are probably acting in good faith in resisting the complaint. (Rollo, pp. 45-46) (Visayan Cebu Terminal Co., Inc. v. Commissioner of Internal Revenue, 13 SCRA 357 [1965]). This is embodied
All the defendants appealed to the Court of Appeals. Eventually, Maersk Line and Compania General de in the Management Contract drawn between the Bureau of Customs and E. Razon Inc., as the Arrastre
Tabacos negotiated with the petitioner for the settlement of the latter's claim and no longer pursued their Operator. The latter agreed to bind itself, to wit:
appeal. CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES
On the appeal of the ARRASTRE, the Court of Appeals rendered a decision with the following dispositive 1. Responsibility and Liability for Losses and Damages;
portion:
 Claims. The CONTRACTOR shall, at its own expense handle all merchandise in the piers
and other designated places and at its own expense perform all work undertaken by it
hereunder diligently and in skillful workmanlike and efficient manner; That the
CONTRACTOR shall be solely responsible as an independent CONTRACTOR, and hereby
agrees to accept liability and to promptly pay to the s hip company, consignee, consignor or
other interested party or parties for the loss, damage, or non-delivery of cargoes to the
extent of the actual invoice value of each package which in no case shall be more than Three
Thousand Five Hundred Pesos (P3,500.00) for each package unless the value of the
importation is otherwise specified or manifested or communicated in writing together with
the invoice value and supported by a certified packing list to the CONTRACTOR by the
interested party or parties before the discharge of the goods, as well as all damage that may
be suffered on account of loss, damage, or destruction of any merchandise while in custody
or under the control of the CONTRACTOR in any pier, shed, warehouse, facility; or other
designated place under the supervision of the BUREAU, but said CONTRACTOR shall not be
responsible for the condition of the contents of any package received nor for the weight, nor
for any loss, injury or damage to the said cargo before or while the goods are being received
or remained on the piers, sheds, warehouse or facility if the loss, injury or damage is caused
by force majeure, or other cause beyond the CONTRACTORS control or capacity to prevent
or remedy; ...
xxx xxx xxx
The CONTRACTOR shall be solely responsible for any and all injury or damage that may
arise on account of the negligence or carelessness of the CONTRACTOR, its agent or
employees in the performance of the undertaking by it to be performed under the terms of
the contract, and the CONTRACTOR hereby agree to and hold the BUREAU at all times
harmless therefrom and whole or any part thereof. (Original Records, pp. 110-112;
Emphasis supplied)
To carry out its duties, the ARRASTRE is required to provide cargo handling equipment which includes among
others trailers, chassis for containers. In some cases, however, the shipping line has its own cargo handling
equipment.
In this particular instance, the records reveal that Maersk Line provided the chassis and the tractor which
carried the carried the subject shipment. It merely requested the ARRASTRE to dispatch a tractor operator to
drive the tractor inasmuch as the foreign shipping line did not have any truck operator in its employ. Such
arrangement is allowed between the ARRASTRE and the CARRIER pursuant to the Management Contract. It
was clearly one of the services offered by the ARRASTRE. We agree with the petitioner that it is the ARRASTRE
which had the sole discretion and prerogative to hire and assign Librando to operate the tractor. It was also
the ARRASTRE's sole decision to detail and deploy Librando for the particular task from among its pool of
tractor operators or drivers. It is, therefore, inacurrate to state that Librando should be considered an
employee of Maersk Line on that specific occasion.
Handling cargo is mainly the s principal work so its driver/operators, "cargadors", or employees should
observe the stand" and indispensable measures necessary to prevent losses and damage to shipments under
its custody. Since the ARRASTRE offered its drivers for the operation of tractors in the handling of cargo and
equipment, then the ARRASTRE should see to it that the drivers under its employ must exercise due diligence
in the performance of their work. From the testimonies of witnesses presented, we gather that
driver/operator Librando was remiss in his duty. Benildez Cepeda, an arrastre-investigator of Metro Port
admitted that Librando as tractor-operator should first have inspected the chassis and made sure that the
cargo was securely loaded on the chassis. He testified:
xxx xxx xxx
Q My question is in your investigation report including enclosures, the
principal reason was that the chassis has no rear twist lock?
A Yes, sir.
Q Did you investigate whether the driver Librando inspected the the
truck before he operated the same whether there was rear twist lock or
not?
A I have asked him about that question whether he had inspected the has
any rear twist lock and the answer he did not inspect, sir.
Q As a operator, do you agree with me that it is the duty also of Librando
to see to it that the truck is in good condition and fit to travel, is that
correct?
A Yes, sir.
Q And as a tractor operator it is his duty to see to it that the van mounted
on top of the tractor was properly is that correct?
A Yes, sir. (At pp. 18-20, T.S.N., February 17, 1982)
Again Danilo Librando also admitted that it was usually his practice to inspect not only the tractor but the
chassis as well but failed to do so in this particular instance.
xxx xxx xxx
Q You mentioned of the absence of a twist lock. Will you tell us where is
this twist lock supposed to be located?
A At the rear end of the chassis.
Q Before you operated the tractor which carried the mounted cord drill
truck and trailer did you examine if the chasiss had any twist locks?
A No, sir, because I presumed that it had twist locks and I was confident
that it had twist locks.
Q As a matter of procedure and according to you, you examined the
tractor, do you not make it a practice to examine whether the chassis had
any twist locks?
A I used to do that but in that particular instance I thought it had already
its twist locks. (p. 8, T.S.N., October 5, 1981)
It is true that Maersk Line is also at fault for not providing twist locks on the chassis. However, we find the
testimony of Manuel Heraldez who is the Motor Pool General Superintendent of Metro Port rather significant.
On cross-examination, he stated that:
Q In your experience, Mr. witness, do you know which is ahead of the
placing of the container van or the placing of the twist lock on the
chassis?
A The twist lock is already permanently attached on the chassis, sir.
Q Earlier, you mentioned that you cannot see the twist lock if the chassis
is loaded, correct?
A Yes, sir.
Q Do you what to impress upon the Honorable Court that, by mere
looking at a loaded chassis, the twist lock cannot be seen by the naked
eye? Because the van contained a hole in which the twist lock thus
entered inside the hold and locked itself. It is already loaded. So. you
cannot no longer see it.
Q But if you closely examine this chassis which has a load of container van.
You can see whether a twist lock is present or not?
A Yes, sir. A twist lock is present.
Q In other words, if the driver of this tractor closely examined this van, he
could have detected whether or not a twist lock is present?
A Yes, sir. (pp. 33-35, T.S.N., March 23, 1982; Emphasis supplied)
Whether or not the twist lock can be seen by the naked eye when the cargo has been loaded on the chassis, an
efficient and diligent tractor operator must nevertheless check if the cargo is securely loaded on the chassis.
We, therefore, find Metro Port Service Inc., solidarily liable in the instant case for the negligence of its
employee. With respect to the limited liability of the ARRASTRE, the records disclose that the value of the
importation was relayed to the arrastre operator and in fact processed by its chief claims examiner based on
the documents submitted.
WHEREFORE, the appealed judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE and
that of the Court of First Instance of Manila, 6th Judicial District, Branch II is REINSTATED. No costs.
SO ORDERED.
Fernan, C.J. (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
THIRD DIVISION
[G.R. No. 134514. December 8, 1999]
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., petitioner, vs.PRUDENTIAL GUARANTEE &
ASSURANCE CO., INC., respondent.
DECISION
PANGANIBAN, J.:
When cargo is placed on a vessel at the shippers load and count, the arrastre operator is required only to
deliver to the consignee the container van received from the shipper, not to verify or to compare the contents
thereof with those declared by the shipper. A claim for reimbursement for the loss, damage or misdelivery of
goods must be filed within 15 days from the date the consignee learns of such problem(s).
The Case
For the resolution of the Court is a Petition for Review under Rule 45 of the Rules of Court assailing the
March 10, 1998 Decision and the June 23, 1998 Resolution both promulgated by the Court of Appeals in CA-GR
CV No. 52129 reversing the trial courts dismissal of the Complaint for the collection of a sum of money filed by
Prudential Guarantee & Insurance Co., Inc. (Prudential) against International Container Terminal Services, Inc.
(ICTSI).
The Facts
The challenged Decision sets forth the facts of this case as follows:
On April 25, 1990, mother vessel Tao He loaded and received on board in San Francisco, California, a shipment
of five (5) lots of canned foodstuff complete and in good order and condition for transport to Manila in favor of
Duel Food Enterprises ("consignee" for brevity). China Ocean Shipping Company issued the corresponding bill
of lading therefor.
Consignee insured the shipment with Prudential Guarantee and Assurance, Inc. against all risks for
P1,921,827.00 under Marine Insurance Policy No. 20RN-3011/90.
On May 30, 1990, the shipment arrived at the Port of Manila and discharged by [the] vessel MS Wei He in favor
of International Container Terminal Services, Inc. for safekeeping.
On June 1, 1990, A. D. Reyna Customs Brokerage ("defendant brokerage" for brevity) withdrew the shipment
and delivered the same to [the] consignee. An inspection thereof revealed that 161 cartons were missing
valued at P85,984.40.
Claim for indemnification of the loss having been denied by [ICTSI] and [the] brokerage, consignee sought
payment from [Prudential] under the marine cargo policy. Consignee received a compromised sum of
P66,730.12 in settlement thereof. As subrogee, [Prudential] instituted the instant complaint against said
defendants [ICTSI and brokerage].
Traversing the complaint, [ICTSI] counters that it observed extraordinary diligence over the subject shipment
while under its custody; that the loss is not attributable to its fault or its agent, representative or employee;
that consignee failed to file a formal claim against it in accordance with PPA Administrative Order No. 10-81;
and that the complaint states no cause of action. By way of crossclaim, it sought reimbursement from
defendant brokerage in the event it is adjudged to pay the loss.
In its Order dated March 3, 1992, the court a quo upon [Prudentials] motion, declared defendant brokerage in
default for failure to file [its] answer within the reglementary period. Acting on [ICTSIs] motion, the
court a quo, in its Order dated May 27, 1992, allowed the former to present its evidence ex-parte against
defendant brokerage relative to the cross claim.
On May 19, 1993, the court a quo rendered a decision dismissing the complaint against defendant brokerage
for lack of evidence.
In its Order of July 12, 1993, the court a quo, upon motion of [ICTSI] and [Prudential], vacated the decision
dated May 19, 1993 and set the case for hearing to give [ICTSI] an opportunity to cross examine [Prudentials]
witnesses.[1]
On November 8, 1995, the trial court[2] rendered a Decision dismissing Prudentials Complaint against
ICTSI in this wise:[3]
Failure on the part of the consignee to comply with the terms and conditions of the contract with
[ICTSI], [Prudential] is not placed in a better position than the consignee who cannot claim damages
against [ICTSI]. Hence, the complaint is hereby DISMISSED.
Reconsideration was denied by the Regional Trial Court in its Order dated December 27, 1995. [4]
Disposing of the appeal, the CA[5] ruled:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and, in lieu thereof, judgment is
hereby rendered ordering [appellee] International [C]ontainer Terminal Services, Inc. (ICTSI) to pay appellant
the sum of P66,730.12 with legal interest from May 13, 1991, until fully paid, plus 10% of xxx said claim by
way of attorneys fee.[6]
Reconsideration of the CA Decision was denied in the herein challenged June 23, 1998 Resolution. [7]
Ruling of the Court of Appeals
The appellate court found ICTSI negligent in its duty to exercise due diligence over the shipment. It
concluded that the shortage was due to pilferage of the shipment while the sea vans were stored at the
container yard of ICTSI.
It also ruled that the filing of a claim depended on the issuance of a certificate of loss by ICTSI based on
the liability clause printed on the back of the arrastre and wharfage receipt. Since ICTSI did not issue such a
certificate despite being informed of the shortage, the 15-day period given to the consignee for filing a formal
claim never began.By subrogation, Prudential, as insurer of the consignee, was entitled to hold the ICTSI liable
for the shortage.
Assignment of Errors
Petitioner claims that the appellate court committed reversible errors (1) in ruling that ICTSI failed to
adduce convincing evidence to rebut the finding of the independent adjuster and (2) in allowing the Complaint
despite the failure of the consignee to file a formal claim within the period stated on the dorsal side of the
arrastre and wharfage receipt.[8]
This Courts Ruling
The Petition is meritorious.
First Issue: Proof of Negligence
The legal relationship between an arrastre operator and a consignee is akin to that between a
warehouseman and a depositor.[9] As to both the nature of the functions and the place of their performance, an
arrastre operators services are clearly not maritime in character.[10]
In a claim for loss filed by a consignee, the burden of proof to show compliance with the obligation to
deliver the goods to the appropriate party devolves upon the arrastre operator. [11] Since the safekeeping of the
goods rests within its knowledge, it must prove that the losses were not due to its negligence or that of its
employees.[12]
To discharge this burden, petitioner presented five Arrastre and Wharfage Bill/Receipts, which also
doubled as container yard gate passes, covering the whole shipment in question. The short-landed shipment
was covered by the gate pass marked Exhibit 5.[13] The latter bore the signature of a representative of the
consignee, acknowledging receipt of the shipment in good order and condition (Exh. 5-e). Thus, we see no
reason to dispute the finding of the trial court that the evidence adduced by the parties will show that the
consignee received the container vans xxx in good condition (Exhs. 1-6).[14]
By its signature on the gate pass and by its failure to protest on time, the consignee is deemed to have
acknowledged receipt of the goods in good order and condition.
Lamberto Cortez, petitioners witness, testified that he personally examined the shipment and identified
the gate pass which covered the delivery of the shipment and which was countersigned by the consignees
representative. He explained the import of his examination as follows:[15]
A: Before I sign this gate pass, sir, the representative of the consignee [gives] it to me then I write down the
items, the goods to be delivered so that it will be mounted in the truck of the consignee. After
mounting it, it will go to our office then I will check the number of the container if it is properly
padlocked, and if it is okay, I will place there okay and I will sign it to be countersigned by the
representative of the consignee, sir.
Q: In other words, Mr. Witness, you said that this particular shipment was padlocked?
A: Yes, sir.
xxxxxxxxx
Q: You also stated that the shipment was okay, will you point to that particular portion of the gate pass?
A: After the physical check-up, I placed there okay, meaning it ha[d] no damage, sir.
The assailed Decision ruled that the petitioner was negligent, as evidenced by the loss of the original seal
and padlock of the container, which were subsequently replaced with safety wire while the shipment was still
stored at the ICTSI compound.[16]
 The appellate court cites, as proof of petitioners negligence, the Survey/Final Report of the independent
adjuster, Tan-Gatue Adjustment Company, Inc. (Exh. F).[17] The Report stated:
The 3,439 cartons comprising [the] balance of the shipment were found and accepted by consignees
representative in good order.
In our opinion, shortage sustained by the shipment was due to pilferage whilst the sea vans containing
the shipment were stored at [the] [c]ontainer [y]ard of the [petitioner], [at] North Harbor, Manila but we
cannot categorically state as to when and who undertook [it] due to the absence of documentary
evidence.
The customs safety wire as well as the padlock of Sea Van No. HTMU-803515-6 where the short
(missing) cartons discovered may have been tampered [with]/opened and returned/re-closed with
finesse which [was] unfortunately not noticed during delivery and prior to opening at consignees
warehouse.
All the sea vans were reportedly full of contents when examined by the customs examiner for tax
evaluation of contents.
The [ship agents] and arrastre contractors['] representative reportedly refused the invitation of the
consignee to witness the stripping/withdrawal of the same from the sea vans at their warehouse
averring that the shipment per Bill of Lading was shipped under []Shippers Load and Count hence,
loss/damage, if any, to the shipment is not their liability.
We thoroughly investigate[d] this particular case at International Container Terminal Services, Inc.,
North Harbor, Manila[,] but up to this time no person(s) and/or group(s) could be pinpointed liable [for]
the shortage of 161 cartons, hence, the delay [in the] issuance of this report.[18]
The adjuster insists that the shipment was complete when the customs examiner opened the sea vans for
tax evaluation. However, the latter's report was not presented. Hence, there is no basis for comparing the
cartons subjected to customs examination and those which were delivered to the consignee.
More important, the consigned goods were shipped under Shippers Load and Count. This means that the
shipper was solely responsible for the loading of the container, while the carrier was oblivious to the contents
of the shipment.[19] Protection against pilferage of the shipment was the consignees lookout. The arrastre
operator was, like any ordinary depositary, duty-bound to take good care of the goods received from the vessel
and to turn the same over to the party entitled to their possession, subject to such qualifications as may have
validly been imposed in the contract between the parties.[20] The arrastre operator was not required to verify the
contents of the container received and to compare them with those declared by the shipper because, as earlier
stated, the cargo was at the shippers load and count. The arrastre operator was expected to deliver to the
consignee only the container received from the carrier.
Petitioner claims that the absence of a request for a bad order survey belied the consignees assertion
that the shipment was filched while in ICTSIs custody, and that such absence did not stop the 15-day period
from running.Normally, a request for a bad order survey is made in case there is an apparent or presumed loss
or damage. The consignee made no such request despite being provided by the petitioner a form therefor.
The lack of a bad order survey does not toll the prescriptive period for filing a claim for loss, because the
consignee can always file a provisional claim within 15 days from the time it discovers the loss or
damage. Such a claim would place the arrastre operator on notice that the shipment sustained damage or loss,
even if the exact amount thereof could not be specified at the moment. In this manner, the arrastre operator
can immediately verify its culpability and liability. A provisional claim seasonably filed is sufficient compliance
with the liability clause.[21]
From the foregoing discussion, it is clear that the appellate court erred in concluding that the shortage
was due to the negligence of the arrastre operator.
Second Issue: Period to File a Claim for Loss
Petitioner contends that the appellate court misconstrued the liability clause printed on the dorsal side
of the Arrastre and Wharfage Bill/Receipt. The contentious provision of this document reads:
Liability Clause
The duly authorized representative of herein named CONSIGNEE, and ICTSI hereby certify to the
correctness of the description of the containerized cargo covered by this CY GATEPASS, the issuance of
which constitutes delivery to and receipt by Consignee of the containerized cargo as described in this CY
GATEPASS, in good order and condition, unless otherwise indicated. This CY GATEPASS is subject to all
terms and conditions defined in the Existing Management Contract between the PPA & ICTSI[;] PPA
Administrative Order No. 10-81, ICTSI shall, however, be liable to the extent of the local invoice value of
each package but not to exceed P3,500 Philippine currency for imported cargoes and P1,000 for
domestic cargoes (consistent with Administrative Order 10-81 unless revised), unless the value thereof
is otherwise specified or manifested or communicated in writing together with the invoice value and
supported by a certified packing list to ICTSI by any interested party/ies before the discharge of the
cargo and corresponding port charges ha[ve] been fully paid. This provision shall only apply upon filing
of a formal claim within 15 days from the date of issuance of the Bad Order Certificate or certificate of
loss, damage or non-delivery by ICTSI.[22]
Petitioner argues that the 15-day limitation for filing a claim against the arrastre operator should run
from the time of the delivery of the goods to the consignee, and that the latters failure to file a claim within said
period is sufficient ground to deny the claim for loss.
On the other hand, the appellate court overruled the trial court, because the filing of the claim was
dependent upon the issuance of a certificate of loss, damage or nondelivery. Since the petitioner did not issue
such certificate, the 15-day limit, the CA opined, did not begin to run against the consignee. Private respondent
argues that the clear and unambiguous language of the liability clause does not support petitioners
construction.
We agree with the petitioner. In order to hold the arrastre operator liable for lost or damaged goods, the
claimant should file with the operator a claim for the value of said goods within fifteen (15) days from the date
of discharge of the last package from the carrying vessel x x x.[23] The filing of the claim for loss within the 15-
day period is in the nature of a prescriptive period for bringing an action and is a condition precedent to
holding the arrastre operator liable. This requirement is a defense made available to the arrastre operator,
who may use or waive it as a matter of personal discretion.[24]
The said requirement is not an empty formality. It gives the arrastre contractor a reasonable opportunity
to check the validity of the claim, while the facts are still fresh in the minds of the persons who took part in the
transaction, and while the pertinent documents are still available. Such period is sufficient for the consignee to
file a provisional claim after the discharge of the goods from the vessel.[25] For this reason, we believe that the
15-day limit is reasonable.
We should hasten to add that while a literal reading of the liability clause makes the time limit run from
the moment the shipment is discharged from the carrying vessel, this Court has chosen to interpret this
condition liberally in an endeavor to promote fairness, equity and justness.[26] A long line of cases has held that
the 15-day period for filing claims should be counted from the date the consignee learns of the loss, damage or
misdelivery of goods.[27]
In the case at bar, the consignee had all the time to make a formal claim from the day it discovered the
shortage in the shipment, which was June 4, 1990, as shown by the records. According to the independent
adjuster, the stripping or opening of the sea vans containing the shipped canned goods was made at the
consignees place upon receipt of the shipment. After discovering the loss, the consignee asked the adjuster to
investigate the reason for the short-landing of the shipment. By the time the claim for loss was filed on October
2, 1990, four months had already elapsed from the date of delivery, June 4, 1990.
Prudential did not explain the delay. It did not even allege or prove that the discovery of the shortage was
made by the consignee only 15-days before October 2, 1990. The latter had to wait for the independent
adjusters survey report dated September 7, 1990, before filing the claim with the former. By that time,
however, it was clearly too late, as the 15-day period had expired.
In any event, within 15 days from the time the loss was discovered, the consignee could have filed a
provisional claim, which would have constituted substantial compliance with the rule. [28] Its failure to do so
relieved the arrastre operator of any liability for the nondelivery of the goods.[29] More specifically, the failure
to file a provisional claim bars a subsequent action in court.[30] The rationale behind the time limit is that,
without it, a consignee could too easily concoct or fabricate claims and deprive the arrastre operator of the
best opportunity to probe immediately their veracity.
WHEREFORE, the Petition is hereby GRANTED. The assailed Decision and Resolution are SET ASIDE, and
the trial courts Decision is REINSTATED. No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
EN BANC
[G.R. No. 130068. October 1, 1998]
FAR EASTERN SHIPPING COMPANY, petitioner, vs. COURT OF APPELAS and PHILIPPINE PORTS
AUTHORITY, respondents.
[G.R. No. 130150. October 1, 1998]
MANILA PILOTS ASSOCIATION, petitioner, vs. PHILIPPINE PORTS AUTHORITY and FAR EASTERN
SHIPPING COMPANY, respondents.
DECISION
REGALADO, J.:
These consolidated petitions for review on certiorari seek in unison to annul and set aside the
decision[1] of respondent Court of Appeals of November 15, 1996 and its resolution [2] dated July 31, 1997 in
CA-G.R. CV No. 24072, entitled Philippine Ports Authority, Plaintiff-Appellee vs. Far Eastern Shipping Company,
Senen C. Gavino and Manila Pilots Association. Defendants-Appellants, which affirmed with modification the
judgment of the trial court holding the defendants-appellants therein solidarily liable for damages in favor of
herein private respondent.
There is no dispute about the facts as found by the appellate court, thus --
x x x On June 20, 1980, the M/V PAVLODAR, flying under the flagship of the USSR, owned and operated by the
Far Eastern Shipping Company (FESC for brevitys sake), arrived at the Port of Manila from Vancouver, British
Columbia at about 7:00 oclock in the morning. The vessel was assigned Berth 4 of the Manila International
Port, as its berthing space. Captain Roberto Abellana was tasked by the Philippine Port Authority to supervise
the berthing of the vessel. Appellant Senen Gavino was assigned by the appellant Manila Pilots Association
(MPA for brevitys sake) to conduct docking maneuvers for the safe berthing of the vessel to Berth No. 4.
Gavino boarded the vessel at the quarantine anchorage and stationed himself in the bridge, with the master of
the vessel, Victor Kavankov, beside him. After a briefing of Gavino by Kavankov of the particulars of the vessel
and its cargo, the vessel lifted anchor from the quarantine anchorage and proceeded to the Manila
International Port. The sea was calm and the wind was ideal for docking maneuvers.
When the vessel reached the landmark (the big church by the Tondo North Harbor) one-half mile from the
pier, Gavino ordered the engine stopped. When the vessel was already about 2,000 feet from the pier, Gavino
ordered the anchor dropped. Kavankov relayed the orders to the crew of the vessel on the bow.The left anchor,
with two (2) shackles were dropped. However, the anchor did not take hold as expected.The speed of the
vessel did not slacken. A commotion ensued between the crew members. A brief conference ensued between
Kavankov and the crew members. When Gavino inquired what was all the commotion about, Kavankov
assured Gavino that there was nothing of it.
After Gavino noticed that the anchor did not take hold, he ordered the engines half-astern. Abellana, who was
then on the pier apron, noticed that the vessel was approaching the pier fast. Kavankov likewise noticed that
the anchor did not take hold. Gavino thereafter gave the full-astern code. Before the right anchor and
additional shackles could be dropped, the bow of the vessel rammed into the apron of thepier causing
considerable damage to the pier. The vessel sustained damage too. (Exhibit 7-Far Eastern Shipping). Kavankov
filed his sea protest (Exhibit 1-Vessel). Gavino submitted his report to the Chief Pilot (Exhibit 1-Pilot) who
referred the report to the Philippine Ports Authority (Exhibit 2-Pilot) Abellana likewise submitted his report of
the incident (Exhibit B).
Per contract and supplemental contract of the Philippine Ports Authority and the contractor for the
rehabilitation of the damaged pier, the same cost the Philippine Ports Authority the amount ofP1,126,132.25
(Exhibits D and E).[3]
On January 10, 1983, the Philippine Ports Authority (PPA, for brevity), through the Solicitor General, filed
before the Regional Trial Court of Manila, Branch 39, a complaint for a sum of money against Far Eastern
Shipping Co., Capt. Senen C. Gavino and the Manila Pilots Association, docketed as Civil Case No. 83-
14958,[4] praying that the defendants therein be held jointly and severally liable to pay the plaintiff actual and
exemplary damages plus costs of suit. In a decision dated August 1, 1985, the trial court ordered the
defendants therein jointly and severally to pay the PPA the amount of P1,053,300.00 representing actual
damages and the cost of suit.[5]
The defendants appealed to the Court of Appeals and raised the following issues: (1) Is the pilot of a
commercial vessel, under compulsory pilotage, solely liable for the damage caused by the vessel to the pier, at
the port of destination, for his negligence? And (2) Would the owner of the vessel be liable likewise if the
damage is caused by the concurrent negligence of the master of vessel and the pilot under a compulsory
pilotage?
As stated at the outset, respondent appellate court affirmed the findings of the court a quo except that it
found no employer-employee relationship existing between herein private respondents Manila Pilots
Association (MPA, for short) and Capt. Gavino.[6] This being so, it ruled instead that the liability of MPA is
anchored, not on Article 2180 of the Civil Code, but on the provisions of Customs Administrative Order No. 15-
65,[7] and accordingly modified said decision of the trial court by holding MPA, along with its co-defendants
therein, still solidarily liable to PPA but entitled MPA to reimbursement from Capt. Gavino for such amount of
the adjudged pecuniary liability in excess of the amount equivalent to seventy-five percent (75%) of its
prescribed reserve fund.[8]
Neither Far Eastern Shipping Co. (briefly, FESC) nor MPA was happy with the decision of the Court of
Appeals and both of them elevated their respective plaints to us via separate petitions for review oncertiorari.
In G.R. No. 130068, which was assigned to the Second Division of this Court, FESC imputed that the Court
of Appeals seriously erred:
1. in not holding Senen C. Gavino and the Manila Pilots Association as the parties solely responsible for the
resulting damages sustained by the pier deliberately ignoring the established jurisprudence on the matter.
2. in holding that the master had not exercised the required diligence demanded from him by the
circumstances at the time the incident happened;
3. in affirming the amount of damages sustained by the respondent Philippine Ports Authority despite a strong
and convincing evidence that the amount is clearly exorbitant and unreasonable;
4. in not awarding any amount of counterclaim prayed for by the petitioner in its answer; and
5. in not granting herein petitioner's claim against pilot Senen C. Gavino and Manila Pilots' Association in the
event that it be held liable.[9]
Petitioner asserts that since the MV PAVLODAR was under compulsory pilotage at the time of the
incident, it was a compulsory pilot, Capt. Gavino, who was in command and had complete control in the
navigation and docking of the vessel. It is the pilot who supersedes the master for the time being in the
command and navigation of a ship and his orders must be obeyed in all respects connected with her
navigation. Consequently, he was solely responsible for the damage caused upon the pier apron, and not the
owners of the vessel. It claims that the master of the boat did not commit any act of negligence when he failed
to countermand or overrule the orders of the pilot because he did not see any justifiable reason to do so. In
other words, the master cannot be faulted for relying absolutely on the competence of the compulsory pilot. If
the master does not observe that a compulsory pilot is incompetent or physically incapacitated, the master is
justified in relying on the pilot.[10]
Respondent PPA, in its comment, predictably in full agreement with the ruling of respondent court on the
solidary liability of FESC, MPA and Capt. Gavino, stresses the concurrent negligence of Capt. Gavino, the harbor
pilot, and Capt. Viktor Kabankov,* shipmaster of MV Pavlodar, as the basis of their solidary liability for
damages sustained by PPA. It posits that the vessel was being piloted by Capt. Gavino with Capt. Kabankov
beside him all the while on the bridge of the vessel, as the former took over the helm of MV Pavlodar when it
rammed and damaged the apron of the pier of Berth No. 4 of the Manila International Port. Their concurrent
negligence was the immediate and proximate cause of the collision between the vessel and the pier - Capt.
Gavino, for his negligence in the conduct of docking maneuvers for the safe berthing of the vessel; and Capt.
Kabankov, for failing to countermand the orders of the harbor pilot and to take over and steer the vessel
himself in the face of imminent danger, as well as for merely relying on Capt. Gavino during the berthing
procedure.[11]
On the other hand, in G.R. No. 130150, originally assigned to the Court's First Division and later
transferred to the Third Division, MPA, now as petitioner in this case, avers the respondent court's errors
consisted in disregarding and misinterpreting Customs Administrative Order No. 15-65 which limits the
liability of MPA. Said pilots' association asseverates that it should not be held solidarily liable with Capt.
Gavino who, as held by respondent court, is only a member, not an employee, thereof. There being no
employer-employee relationship, neither can MPA be held liable for any vicarious liability for the respective
exercise of profession by its members nor be considered a joint tortfeasor as to be held jointly and severally
liable.[12] It further argues that there was erroneous reliance on Customs Administrative Order No. 15-65 and
the constitution and by-laws of MPA, instead of the provisions of the Civil Code on damages which, being a
substantive law, is higher in category than the aforesaid constitution and by-laws of a professional
organization or an administrative order which bears no provision classifying the nature of the liability of MPA
for the negligence its member pilots.[13]
As for Capt. Gavino, counsel for MPA states that the former had retired from active pilotage services since
July 28, 1994 and has ceased to be a member of petitioner pilots' association. He is not joined as a petitioner in
this case since his whereabouts are unknown.[14]
FESC's comment thereto relied on the competence of the Court of Appeals in construing provisions of law
or administrative orders as basis for ascertaining the liability of MPA, and expressed full accord with the
appellate court's holding of solidary liability among itself, MPA and Capt. Gavino. It further avers that the
disputed provisions of Customs Administrative Order No. 15-65 clearly established MPA's solidary liability.[15]
On the other hand, public respondent PPA, likewise through representations by the Solicitor General,
assumes the same supportive stance it took in G.R. No. 130068 in declaring its total accord with the ruling of
the Court of Appeals that MPA is solidarily liable with Capt. Gavino and FESC for damages, and in its
application to the fullest extent of the provisions of Customs Administrative Order No. 15-65 in relation to
MPA's constitution and by-laws which spell out the conditions of and govern their respective liabilities. These
provisions are clear and ambiguous as regards MPA's liability without need for interpretation or
construction. Although Customs Administrative Order No. 15-65 is a mere regulation issued by an
administrative agency pursuant to delegated legislative authority to fix details to implement the law, it is
legally binding and has the same statutory force as any valid statute.[16]
Upon motion[17] by FESC dated April 24, 1998 in G.R. No. 130150, said case was consolidated with G.R.
No. 130068.[18]
Prefatorily, on matters of compliance with procedural requirements, it must be mentioned that the
conduct of the respective counsel for FESC and PPA leaves much to be desired, to the displeasure and
disappointment of this Court.
Section 2, Rule 42 of the 1997 Rules of Civil Procedure[19] incorporates the former Circular No. 28-91
which provided for what has come to be known as the certification against forum shopping as an additional
requisite for petitions filed with the Supreme Court and the Court of Appeals, aside from the other
requirements contained in pertinent provisions of the Rules of Court therefor, with the end in view of
preventing the filing of multiple complaints involving the same issues in the Supreme Court, Court of Appeals
or different divisions thereof or any other tribunal or agency.
More particularly, the second paragraph of Section 2, Rule 42 provides:
xxxxxxxxx
The petitioner shall also submit together with the petition a certification under oath that he has not therefore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the
status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or
agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five
(5) days therefrom. (Italics supplied.)
For petitions for review filed before the Supreme Court, Section 4(e), Rule 45 specifically requires that such
petition shall contain a sworn certification against forum shopping as provided in the last paragraph of Section
2, Rule 42.
The records show that the law firm of Del Rosario and Del Rosario through its associate, Atty. Herbert A.
Tria, is the counsel of record for FESC in both G.R. No. 130068 and G.R. No. 130150.
G.R. No. 130068, which is assigned to the Court's Second Division, commenced with the filing by FESC
through counsel on August 22, 1997 of a verified motion for extension of time to file its petition for thirty (30)
days from August 28, 1997 or until September 27, 1997.[20] Said motion contained the following certification
against forum shopping[21] signed by Atty. Herbert A. Tria as affiant:
CERTIFICATION
AGAINST FORUM SHOPPING
I/we hereby certify that I/we have not commenced any other action or proceeding involving the same issues
in the Supreme Court, the Court of Appeals, or any other tribunal or agency; that to the best of my own
knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or any other
tribunal or agency; that if I/we should thereafter learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or any other tribunal or agency, I/we undertake to
report that fact within five (5) days therefrom to this Honorable Court.
This motion having been granted, FESC subsequently filed its petition on September 26, 1997, this time
bearing a "verification and certification against forum-shopping" executed by one Teodoro P. Lopez on
September 24, 1997,[22] to wit:
VERIFICATION AND CERTIFICATION
AGAINST FORUM SHOPPING
in compliance with Section 4(e), Rule 45 in relation to Section 2, Rule 42 of the Revised Rules of Civil Procedure
I, Teodoro P. Lopez, of legal age, after being duly sworn, depose and state:
1. That I am the Manager, Claims Department of Filsov Shipping Company, the local agent of petitioner in this
case.
2. That I have caused the preparation of this Petition for Review on Certiorari.
3. That I have read the same and the allegations therein contained are true and correct based on the records of
this case.
4. That I certify that petitioner has not commenced any other action or proceeding involving the same issues in
the Supreme Court or Court of Appeals, or any other tribunal or agency, that to the best of my own knowledge,
no such action or proceeding is pending in the Supreme Court, the Court of Appeals or any other tribunal or
agency, that I should thereafter learn that a similar action or proceeding has been filed or is pending before the
Supreme Court, the Court of Appeals, or any other tribunal or agency, I undertake to report the fact within five (5)
days therefrom to this Honorable Court. (Italics supplied for emphasis.)
Reviewing the records, we find that the petition filed by MPA in G.R. No. 130150 then pending with the
Third Division was duly filed on August 29, 1997 with a copy thereof furnished on the same date by registered
mail to counsel for FESC.[23] Counsel of record for MPA, Atty. Jesus P. Amparo, in his verification accompanying
said petition dutifully revealed to the Court that--
xxxxxxxxx
3. Petitioner has not commenced any other action or proceeding involving the same issues in his Honorable
Court, the Court of Appeals or different Divisions thereof, or any other tribunal or agency, but to the best of his
knowledge, there is an action or proceeding pending in this Honorable Court, entitled Far Eastern Shipping Co.,
Petitioner, vs. Philippine Ports Authority and Court of Appeals with a Motion for Extension of time to file Petition
for Review by Certiorari filed sometime on August 18, 1997. If undersigned counsel will come to know of any
other pending action or claim filed or pending he undertakes to report such fact within five (5) days to this
Honorable Court.[24] (Italics supplied.)
Inasmuch as MPA's petition in G.R. No. 130150 was posted by registered mail on August 29, 1997 and
taking judicial notice of the average period of time it takes local mail to reach its destination, by reasonable
estimation it would be fair to conclude that when FESC filed its petition in G.R. No. 130068 on September 26,
1997, it would already have received a copy of the former and would then have knowledge of the pendency of
the other petition initially filed with the First Division. It was therefore incumbent upon FESC to inform the
Court of that fact through its certification against forum shopping.For failure to make such disclosure, it would
appear that the aforequoted certification accompanying the petition in G.R. No. 130068 is defective and could
have been a ground for dismissal thereof.
Even assuming that FESC has not yet received its copy of MPA's petition at the time it filed its own
petition and executed said certification, its signatory did state "that if I should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals or any other
tribunal or agency, I undertake to report the fact within five (5) days therefrom in this Honorable
Court."[25] Scouring the records page by page in this case, we find that no manifestation concordant with such
undertaking was then or at any other time thereafter ever filed by FESC nor was there any attempt to bring
such matter to the attention of the Court. Moreover, it cannot feign non-knowledge of the existence of such
other petition because FESC itself filed the motion for consolidation in G.R. No. 130150 of these two cases on
April 24, 1998.
It is disturbing to note that counsel for FESC, the law firm of Del Rosario and Del Rosario, displays an
unprofessional tendency of taking the Rules for granted, in this instance exemplified by its pro
formacompliance therewith but apparently without full comprehension of and with less than faithful
commitment to its undertakings to this Court in the interest of just, speedy and orderly administration of court
proceedings.
 As between the lawyer and the courts, a lawyer owes candor, fairness and good faith to the court. [26]He is
an officer of the court exercising a privilege which is indispensable in the administration of
justice.[27] Candidness, especially towards the courts, is essential for the expeditious administration of
justice.Courts are entitled to expect only complete honesty from lawyers appearing and pleading before
them.[28] Candor in all dealings is the very essence of honorable membership in the legal profession.[29] More
specifically, a lawyer is obliged to observe the rules of procedure and not to misuse them to defeat the ends of
justice.[30] It behooves a lawyer, therefore, to exert every effort and consider it his duty to assist in the speedy
and efficient administration of justice.[31] Being an officer of the court, a lawyer has a responsibility in the
proper administration of justice. Like the court itself, he is an instrument to advance its ends -- the speedy,
efficient, impartial, correct and inexpensive adjudication of cases and the prompt satisfaction of final
judgments. A lawyer should not only help attain these objectives but should likewise avoid any unethical or
improper practices that impede, obstruct or prevent their realization, charged as he is with the primary task of
assisting in the speedy and efficient administration of justice.[32]
Sad to say, the members of said law firm sorely failed to observe their duties as responsible members of
the Bar. Their actuations are indicative of their predisposition to take lightly the avowed duties of officers of
the Court to promote respect for law and for legal processes.[33] We cannot allow this state of things to pass
judicial muster.
In view of the fact that at around the time these petitions were commenced, the 1997 Rules of Civil
Procedure had just taken effect, the Court treated infractions of the new Rules then with relative liberality in
evaluating full compliance therewith. Nevertheless, it would do well to remind all concerned that the penal
provisions of Circular No. 28-91 which remain operative provides, inter alia:
3. Penalties.-
xxxxxxxxx
(c) The submission of a false certification under Par. 2 of the Circular shall likewise constitute contempt of
court, without prejudice to the filing of criminal action against the guilty party. The lawyer may also be
subjected to disciplinary proceedings.
It must be stressed that the certification against forum shopping ordained under the Rules is to be
executed by the petitioner, and not by counsel. Obviously it is the petitioner, and not always the counsel whose
professional services have been retained for a particular case, who is in the best position to know whether he
or it actually filed or caused the filing of a petition in that case. Hence, a certification against forum shopping by
counsel is a defective certification. It is clearly equivalent to non-compliance with the requirement under
Section 2, Rule 42 in relation to Section 4, Rule 45, and constitutes a valid cause for dismissal of the petition.
Hence, the initial certification appended to the motion for extension of time to file petition n G.R. No.
130068 executed in behalf of FESC by Atty. Tria is procedurally deficient. But considering that it was a
superfluity at that stage of the proceeding, it being unnecessary to file such a certification with a mere motion
for extension, we shall disregard such error. Besides, the certification subsequently executed by Teodoro P.
Lopez in behalf of FESC cures that defect to a certain extent, despite the inaccuracies earlier pointed out. In the
same vein, we shall consider the verification signed in behalf of MPA by its counsel, Atty. Amparo, in G.R. No.
130150 as substantial compliance inasmuch as it served the purpose of the Rules of informing the Court of the
pendency of another action or proceeding involving the same issues.
It bears stressing that procedural rules are instruments in the speedy and efficient administration of
justice. They should be used to achieve such end and not to derail it.[34]
Counsel for PPA did not make matters any better. Despite the fact that, save for the Solicitor General at
the time, the same legal team of the Office of the Solicitor General (OSG, for short) composed of Assistant
Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, with the addition of Assistant Solicitor
General Pio C. Guerrero very much later in the proceedings, represented PPA throughout the appellate
proceedings in both G.R. No. 130068 and G.R. No. 130150 and was presumably fully acquainted with the facts
and issues of the case, it took the OSG an inordinately and almost unreasonably long period of time to file its
comment, thus unduly delaying the resolution of these cases. It took several changes of leadership in the OSG --
from Silvestre H. Bello III to Romeo C. dela Cruz and, finally, Ricardo P. Galvez -- before the comment in behalf
of PPA was finally filed.
In G.R. No. 130068, it took eight (8) motions for extension of time totaling 210 days, a warning that no
further extensions shall be granted, and personal service on the Solicitor General himself of the resolution
requiring the filing of such comment before the OSG indulged the Court with the long required comment on
July 10, 1998.[35] This, despite the fact that said office was required to file its comment way back on November
12, 1997.[36] A closer scrutiny of the records likewise indicates that petitioner FESC was not even furnished a
copy of said comment as required by Section 5, Rule 42. Instead, a copy thereof was inadvertently furnished to
MPA which, from the point of view of G.R. No. 130068, was a non-party.[37] The OSG fared slightly better in G.R.
No. 130150 in that it took only six (6) extensions, or a total of 180 days, before the comment was finally
filed.[38] And while it properly furnished petitioner MPA with a copy of its comment, it would have been more
desirable and expedient in this case to have furnished its therein co-respondent FESC with a copy thereof, if
only as a matter of professional courtesy.[39]
This undeniably dilatory disinclination of the OSG to seasonably file required pleadings constitutes
deplorable disservice to the tax-paying public and can only be categorized as censurable inefficiency on the
part of the government law office. This is most certainly professionally unbecoming of the OSG.
Another thing that baffles the Court is why the OSG did not take the initiative of filing a motion for
consolidation in either G.R. No. 130068 or G.R. No. 130150, considering its familiarity with the background of
the case and if only to make its job easier by having to prepare and file only one comment. It could not have
been unaware of the pendency of one or the other petition because, being counsel for respondent in both
cases, petitioner is required to furnish it with a copy of the petition under pain of dismissal of the petition for
failure otherwise.[40]
Besides, in G.R. 130068, it prefaces its discussions thus --
Incidentally, the Manila Pilots' Association (MPA), one of the defendants-appellants in the case before the
respondent Court of Appeals, has taken a separate appeal from the said decision to this Honorable Court,
which was docketed as G.R. No. 130150 and entitled "Manila Pilots' Association, Petitioner, versus Philippine
Ports Authority and Far Eastern Shipping Co., Respondents.[41]
Similarly, in G.R. No. 130150, it states -
Incidentally, respondent Far Eastern Shipping Co. (FESC) had also taken an appeal from the said decision to
this Honorable Court, docketed as G.R. No. 130068, entitled "Far Eastern Shipping Co. vs. Court of Appeals and
Philippine Ports Authority."[42]
We find here a lackadaisical attitude and complacency on the part of the OSG in the handling of its cases
and an almost reflexive propensity to move for countless extensions, as if to test the patience of the Court,
before favoring it with the timely submission of required pleadings.
It must be emphasized that the Court can resolve cases only as fast as the respective parties in a case file
the necessary pleadings. The OSG, be needlessly extending the pendency of these cases through its numerous
motions for extension, came very close to exhausting this Court's forbearance and has regrettably fallen short
of its duties as the People's Tribune.
The OSG is reminded that just like other members of the Bar, the canons under the Code of Professional
Responsibility apply with equal force on lawyers in government service in the discharge of their official
tasks.[43] These ethical duties are rendered even more exacting as to them because, as government counsel,
they have the added duty to abide by the policy of the State to promote a high standard of ethics in public
service.[44] Furthermore, it is incumbent upon the OSG, as part of the government bureaucracy, to perform and
discharge its duties with the highest degree of professionalism, intelligence and skill[45] and to extend prompt,
courteous and adequate service to the public.[46]
Now, on the merits of the case. After a judicious examination of the records of this case, the pleadings
filed, and the evidence presented by the parties in the two petitions, we find no cogent reason to reverse and
set aside the questioned decision. While not entirely a case of first impression, we shall discuss the
issues seriatim and, correlatively by way of a judicial once-over, inasmuch as the matters raised in both
petitions beg for validation and updating of well worn maritime jurisprudence. Thereby, we shall write finis to
the endless finger-pointing in this shipping mishap which has been stretched beyond the limits of judicial
tolerance.
The Port of Manila is within the Manila Pilotage District which is under compulsory pilotage pursuant to
Section 8, Article III of Philippine Ports Authority Administrative Order No. 03-85,[47] which provides that:
SEC. 8. Compulsory Pilotage Service.- For entering a harbor and anchoring thereat, or passing through rivers or
straits within a pilotage district, as well as docking and undocking at any pier/wharf, or shifting from one
berth or another, every vessel engaged in coastwise and foreign trade shall be under compulsory pilotage. x x x
In case of compulsory pilotage, the respective duties and responsibilities of the compulsory pilot and the
master have been specified by the same regulation in this wise:
SEC. 11. Control of vessels and liability for damage. - On compulsory pilotage grounds, the Harbor Pilot,
providing the service to a vessel shall be responsible for the damage caused to a vessel or to life and property
at ports due to his negligence or fault. He can only be absolved from liability if the accident is caused by force
majeure or natural calamities provided he has exercised prudence and extra diligence to prevent or minimize
damage.
The Master shall retain overall command of the vessel even on pilotage grounds whereby he can countermand
or overrule the order or command of the Harbor Pilot on board. In such event, any damage caused to a vessel
or to life and property at ports by reason of the fault or negligence of the Master shall be the responsibility and
liability of the registered owner of the vessel concerned without prejudice to recourse against said Master.
Such liability of the owner or Master of the vessel or its pilots shall be determined by competent authority in
appropriate proceedings in the light of the facts and circumstances of each particular case.
SEC. 32. Duties and responsibilities of the Pilot or Pilots' Association. - The duties and responsibilities of the
Harbor Pilot shall be as follows:
xxxxxxxxx
f) a pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a pilot
thereof until he leaves it anchored or berthed safely; Provided, however, that his responsibility shall cease at
the moment the Master neglects or refuses to carry out his order.
Customs Administrative Order No. 15-65 issued twenty years earlier likewise provided in Chapter I
thereof for the responsibilities of pilots:
Par. XXXIX. - A Pilot shall be held responsible for the direction of a vessel from the time he assumes control
thereof until he leaves it anchored free from shoal; Provided, That his responsibility shall cease at the moment
the master neglects or refuses to carry out his instructions.
xxxxxxxxx
Par. XLIV. - Pilots shall properly and safely secure or anchor vessels under their control when requested to do
so by the master of such vessels.
I. G.R. No. 130068
Petitioner FESC faults the respondent court with serious error in not holding MPA and Capt. Gavino
solely responsible for the damages caused to the pier. It avers that since the vessel was under compulsory
pilotage at the time with Capt. Gavino in command and having exclusive control of the vessel during the
docking maneuvers, then the latter should be responsible for damages caused to the pier. [48] It likewise holds
the appellate court in error for holding that the master of the ship, Capt. Kabankov, did not exercise the
required diligence demanded by the circumstances.[49]
We start our discussion of the successive issues bearing in mind the evidentiary rule in American
jurisprudence that there is a presumption of fault against a moving vessel that strikes a stationary object such
as a dock or navigational aid. In admiralty, this presumption does more than merely require the ship to go
forward and produce some evidence on the presumptive matter. The moving vessel must show that it was
without fault or that the collision was occasioned by the fault of the stationary object or was the result of
inevitable accident. It has been held that such vessel must exhaust every reasonable possibility which the
circumstances admit and show that in each, they did all that reasonable care required. [50] In the absence of
sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides with a fixed
object and makes a prima facie case of fault against the vessel.[51] Logic and experience support this
presumption:
The common sense behind the rule makes the burden a heavy one. Such accidents simply do not occur in the
ordinary course of things unless the vessel has been mismanaged in some way. It is not sufficient for the
respondent to produce witnesses who testify that as soon as the danger became apparent everything possible
was done to avoid an accident. The question remains, How then did the collision occur? The answer must be
either that, in spite of the testimony of the witnesses, what was done was too little or too late or, if not, then
the vessel was at fault for being in a position in which an unavoidable collision would occur.[52]
The task, therefore, in these cases is to pinpoint who was negligent - the master of the ship, the harbor pilot or
both.
A pilot, in maritime law, is a person duly qualified, and licensed, to conduct a vessel into or out of ports,
or in certain waters. In a broad sense, the term "pilot" includes both (1) those whose duty it is to guide vessels
into or out of ports, or in particular waters and (2) those entrusted with the navigation of vessels on the high
seas.[53] However, the term "pilot" is more generally understood as a person taken on board at a particular
place for the purpose of conducting a ship through a river, road or channel, or from a port.[54]
Under English and American authorities, generally speaking, the pilot supersedes the master for the time
being in the command and navigation of the ship, and his orders must be obeyed in all matters connected with
her navigation. He becomes the master pro hac vice and should give all directions as to speed, course, stopping
and reversing, anchoring, towing and the like. And when a licensed pilot is employed in a place where pilotage
is compulsory, it is his duty to insist on having effective control of the vessel, or to decline to act as pilot. Under
certain systems of foreign law, the pilot does not take entire charge of the vessel, but is deemed merely the
adviser of the master, who retains command and control of the navigation even on localities where pilotage is
compulsory.[55]
It is quite common for states and localities to provide for compulsory pilotage, and safety laws have been
enacted requiring vessels approaching their ports, with certain exceptions, to take on board pilots duly
licensed under local law. The purpose of these laws is to create a body of seamen thoroughly acquainted with
the harbor, to pilot vessels seeking to enter or depart, and thus protect life and property from the dangers of
navigation.[56]
In line with such established doctrines, Chapter II of Customs Administrative Order No. 15-65 prescribes
the rules of compulsory pilotage in the covered pilotage districts, among which is the Manila Pilotage District,
viz. --
PARAGRAPH I. - Pilotage for entering a harbor and anchoring thereat, as well as docking and undocking
in any pier or shifting from one berth to another shall be compulsory, except Government vessels and vessels
of foreign governments entitled to courtesy, and other vessels engaged solely in river or harbor work, or in a
daily ferry service between ports which shall be exempt from compulsory pilotage provisions of these
regulations: provided, however, that compulsory pilotage shall not apply in pilotage districts whose optional
pilotage is allowed under these regulations.
Pursuant thereto, Capt. Gavino was assigned to pilot MV Pavlodar into Berth 4 of the Manila
International Port. Upon assuming such office as compulsory pilot, Capt. Gavino is held to the universally
accepted high standards of care and diligence required of a pilot, whereby he assumes to have skill and
knowledge in respect to navigation in the particular waters over which his license extends superior to and
more to be trusted than that of the master.[57] A pilot should have a thorough knowledge of general and local
regulations and physical conditions affecting the vessel in his charge and the waters for which he is licensed,
such as a particular harbor or river. He is not held to the highest possible degree of skill and care, but must
have and exercise the ordinary skill and care demanded by the circumstances, and usually shown by an expert
in his profession. Under extraordinary circumstances, a pilot must exercise extraordinary care.[58]
In Atlee vs. The Northwestern Union Packet Company,[59] Mr. Justice Miller spelled out in great detail the
duties of a pilot:
x x x (T)he pilot of a river steamer, like the harbor pilot, is selected for his personal knowledge of the
topography through which he steers his vessel. In the long course of a thousand miles in one of these rivers, he
must be familiar with the appearance of the shore on each side of the river as he goes along.Its banks, towns,
its landings, its houses and trees, are all landmarks by which he steers his vessel. The compass is of little use to
him. He must know where the navigable channel is, in its relation to all these external objects, especially in the
night. He must also be familiar with all dangers that are permanently located in the course of the river, as sand-
bars, snags, sunken rocks or trees or abandoned vessels or barges. All this he must know and remember and
avoid. To do this, he must be constantly informed of the changes in the current of the river, of the sand-bars
newly made, of logs or snags, or other objects newly presented, against which his vessel might be injured.
xxxxxxxxx
It may be said that this is exacting a very high order of ability in a pilot. But when we consider the value
of the lives and property committed to their control, for in this they are absolute masters, the high
compensation they receive, the care which Congress has taken to secure by rigid and frequent examinations
and renewal of licenses, this very class of skill, we do not think we fix the standard too high.
Tested thereby, we affirm respondent court's finding that Capt. Gavino failed to measure up to such strict
standard of care and diligence required of pilots in the performance of their duties. Witness this testimony of
Capt. Gavino:
Court:
 You have testified before that the reason why the vessel bumped the pier was because the anchor
was not released immediately or as soon as you have given the order. Do you remember having
stated that?
A Yes, your Honor.
Q And you gave this order to the captain of the vessel?
A Yes, your Honor.
Q By that testimony, you are leading the Court to understand that is that anchor was released immediately
at the time you gave the order, the incident would not have happened. Is that correct?
A Yes, sir, but actually it was only a presumption on my part because there was a commotion between the
officers who are in charge of the dropping of the anchor and the captain. I could not understand their
language, it was in Russian, so I presumed the anchor was not dropped on time.
Q So, you are not sure whether it was really dropped on time or not?
A I am not sure, your Honor.
xxxxxxxxx
Q You are not even sure what could have caused the incident. What factor could have caused the incident?
A Well, in this case now, because either the anchor was not dropped on time or the anchor did not hold,
that was the cause of the incident, your Honor.[60]
It is disconcertingly riddled with too much incertitude and manifests a seeming indifference for the
possibly injurious consequences his commands as pilot may have. Prudence required that he, as pilot, should
have made sure that his directions were promptly and strictly followed. As correctly noted by the trial court -
Moreover, assuming that he did indeed give the command to drop the anchor on time, as pilot he should
have seen to it that the order was carried out, and he could have done this in a number of ways, one of which
was to inspect the bow of the vessel where the anchor mechanism was installed. Of course, Captain Gavino
makes reference to a commotion among the crew members which supposedly caused the delay in the
execution of the command. This account was reflected in the pilot's report prepared four hours later, but Capt.
Kavankov, while not admitting whether or not such a commotion occurred, maintained that the command to
drop anchor was followed "immediately and precisely." Hence, the Court cannot give much weight or
consideration to this portion of Gavino's testimony."[61]
An act may be negligent if it is done without the competence that a reasonable person in the position of
the actor would recognize as necessary to prevent it from creating an unreasonable risk of harm to
another.[62] Those who undertake any work calling for special skills are required not only to exercise
reasonable care in what they do but also possess a standard minimum of special knowledge and ability.[63]
Every man who offers his services to another, and is employed, assumes to exercise in the employment
such skills he possesses, with a reasonable degree of diligence. In all these employments where peculiar skill is
requisite, if one offers his services he is understood as holding himself out to the public as possessing the
degree of skill commonly possessed by others in the same employment, and if his pretensions are unfounded
he commits a species of fraud on every man who employs him in reliance on his public profession. [64]
Furthermore, there is an obligation on all persons to take the care which, under ordinary circumstances
of the case, a reasonable and prudent man would take, and the omission of that care constitutes
negligence.[65] Generally, the degree of care required is graduated according to the danger a person or property
attendant upon the activity which the actor pursues or the instrumentality which he uses. The greater the
danger the greater the degree of care required. What is ordinary under extraordinary of conditions is dictated
by those conditions; extraordinary risk demands extraordinary care. Similarly, the more imminent the danger,
the higher the degree of care.[66]
We give our imprimatur to the bases for the conclusion of the Court of Appeals that Capt. Gavino was
indeed negligent in the performance of his duties:
xxxxxxxxx
x x x As can be gleaned from the logbook, Gavino ordered the left anchor and two (2) shackles dropped at
8:30 o'clock in the morning. He ordered the engines of the vessel stopped at 8:31 o'clock. By then, Gavino must
have realized that the anchor did not hit a hard object and was not clawed so as to reduce the momentum of
the vessel. In point of fact, the vessel continued travelling towards the pier at the same speed. Gavino failed to
react. At 8:32 o'clock, the two (2) tugboats began to push the stern part of the vessel from the port side but the
momentum of the vessel was not contained. Still, Gavino did not react. He did not even order the other anchor
and two (2) more shackles dropped to arrest the momentum of the vessel. Neither did he order full-astern. It
was only at 8:34 o'clock, or four (4) minutes,after the anchor was dropped that Gavino reacted. But his
reaction was even (haphazard) because instead of arresting fully the momentum of the vessel with the help of
the tugboats, Gavino ordered merely "half-astern". It took Gavino another minute to order a "full-astern". By
then, it was too late. The vessel's momentum could no longer be arrested and, barely a minute thereafter, the
bow of the vessel hit the apron of the pier. Patently, Gavino miscalculated. He failed to react and undertake
adequate measures to arrest fully the momentum of the vessel after the anchor failed to claw to the seabed.
When he reacted, the same was even (haphazard). Gavino failed to reckon the bulk of the vessel, its size and its
cargo. He erroneously believed that only one (1) anchor would suffice and even when the anchor failed to claw
into the seabed or against a hard object in the seabed, Gavino failed to order the other anchor dropped
immediately. His claim that the anchor was dropped when the vessel was only 1,000 feet from the pier is but a
belated attempt to extricate himself from the quagmire of his own insouciance and negligence. In sum, then,
Appellants' claim that the incident was caused by "force majeure" is barren of factual basis.
xxxxxxxxx
The harbor pilots are especially trained for this job. In the Philippines, one may not be a harbor pilot
unless he passed the required examination and training conducted then by the Bureau of Custom, under
Customs Administrative Order No. 15-65, now under the Philippine Ports Authority under PPA Administrative
Order 63-85. Paragraph XXXIX of the Customs Administrative Order No. 15-65 provides that "the pilot shall be
held responsible for the direction of the vessel from the time he assumes control thereof, until he leaves it
anchored free from shoal: Provided, that his responsibility shall cease at the moment the master neglects or
refuse(s) to carry out his instructions." The overall direction regarding the procedure for docking and
undocking the vessel emanates from the harbor pilot. In the present recourse, Gavino failed to live up to his
responsibilities and exercise reasonable care or that degree of care required by the exigencies of the
occasion. Failure on his part to exercise the degree of care demanded by the circumstances is negligence (Reese
versus Philadelphia & RR Co. 239 US 463, 60 L ed. 384, 57 Am Jur. 2d 12age 418).[67]
This affirms the findings of the trial court regarding Capt. Gavino's negligence:
This discussion should not however, divert the court from the fact that negligence in manuevering the
vessel must be attributed to Capt. Senen Gavino. He was an experienced pilot and by this time should have long
familiarized himself with the depth of the port and the distance he could keep between the vessel and port in
order to berth safely.[68]
The negligence on the part of Capt. Gavino is evident; but Capt. Kabankov is no less responsible for the
allision. His unconcerned lethargy as master of the ship in the face of troublous exigence constitutes
negligence.
While it is indubitable that in exercising his functions a pilot-is in sole command of the ship[69] and
supersedes the master for the time being in the command and navigation of a ship and that he becomes
master pro hac vice of a vessel piloted by him,[70] there is overwhelming authority to the effect that the master
does not surrender his vessel to the pilot and the pilot is not the master. The master is still in command of the
vessel notwithstanding the presence of a pilot. There are occasions when the master may and should interfere
and even displace the pilot, as when the pilot is obviously incompetent or intoxicated and the circumstances
may require the master to displace a compulsory pilot because of incompetency or physical incapacity. If,
however, the master does not observe that a compulsory pilot is incompetent or physically incapacitated, the
master is justified in relying on the pilot, but not blindly.[71]
The master is not wholly absolved from his duties while a pilot is on board his vessel, and may advise
with or offer suggestions to him. He is still in command of the vessel, except so far as her navigation is
concerned, and must cause the ordinary work of the vessel to be properly carried on and the usual precaution
taken. Thus, in particular, he is bound to see that there is sufficient watch on deck, and that the men are
attentive to their duties, also that engines are stopped, towlines cast off, and the anchors clear and ready to go
at the pilot's order.[72]
A perusal of Capt. Kabankov's testimony makes it apparent that he was remiss in the discharge of his
duties as master of the ship, leaving the entire docking procedure up to the pilot, instead of maintaining
watchful vigilance over this risky maneuver:
Q Will you please tell us whether you have the right to intervene in docking of your ship in the harbor?
A No sir, I have no right to intervene in time of docking, only in case there is imminent danger to the vessel
and to the pier.
Q Did you ever intervene during the time that your ship was being docked by Capt. Gavino?
 A No sir, I did not intervene at the time when the pilot was docking my ship.
Q Up to the time it was actually docked at the pier, is that correct'?
A No sir, I did not intervene up to the very moment when the vessel was docked.
xxxxxxxxx
Atty. Del Rosario (to the witness)
Q Mr. Witness, what happened, if any, or was there anything unusual that happened during the docking?
A Yes sir, our ship touched the pier and the pier was damaged.
Court (to the witness)
Q When you said touched the pier, are you leading the court to understand that your ship bumped the pier?
A I believe that my vessel only touched the pier but the impact was very weak.
Q Do you know whether the pier was damaged as a result of that slight or weak impact?
A Yes sir, after the pier was damaged.
xxxxxxxxx
Q Being most concerned with the safety of your vessel, in the maneuvering of your vessel, to the port, did
you observe anything irregular in the maneuvering by Capt. Gavino at the time he was trying to cause
the vessel to be docked at the pier?
A You mean the action of Capt. Gavino or his condition?
Court:
Q Not the actuation that conform to the safety maneuver of the ship to the harbor?
A No sir, it was a usual docking.
Q By that statement of yours, you are leading the court to understand that there was nothing irregular in
the docking of the ship?
A Yes sir, during the initial period, of the docking, there was nothing unusual that happened.
Q What about in the last portion of the docking of the ship, was there anything unusual or abnormal that
happened?
A None Your Honor, I believe that Capt. Gavino thought that the anchor could keep or hold the vessel.
Q You want us to understand, Mr. Witness, that the dropping of the anchor of the vessel was not timely?
A I don't know the depth of this port but I think, if the anchor was dropped earlier and with more shackles,
there could not have been an incident.
Q So you could not precisely tell the court that the dropping of the anchor was timely because you are not
well aware of the seabed, is that correct?
A Yes sir, that, is right.
xxxxxxxxx
Q Alright, Capt. Kavankov, did you come to know later whether the anchor held its ground so much so that
the vessel could not travel?
A It is difficult for me to say definitely. I believe that the anchor did not hold the ship.
Q You mean you don't know whether the anchor blades stuck to the ground to stop the ship from further
moving?
A Yes sir, it is possible.
Q What is possible?
A I think, the 2 shackles were not enough to hold the vessel.
Q Did you know that the 2 shackles were dropped?
A Yes sir, I knew that.
Q If you knew that the shackles were not enough to hold the ship, did you not make any protest to the
pilot?
A No sir, after the incident, that was my assumption.
Q Did you come to know later whether that presumption is correct?
A I still don't know the ground in the harbor or the depths.
Q So from the beginning, you were not competent whether the 2 shackles were also dropped to hold the
ship?
A No sir, at the beginning, I did not doubt it because I believe Capt. Gavino to be an experienced pilot and
he should be more aware as to the depths of the harbor and the ground and I was confident in his
actions.
xxxxxxxxx
Solicitor Abad (to the witness)
Q Now, you were standing with the pilot on the bridge of the vessel before the incident happened, were
you not?
A Yes sir, all the time, I was standing with the pilot.
Q And so whatever the pilot saw, you could also see from that point of view?
A That is right.
Q Whatever the pilot can read from the panel of the bridge, you also could read, is that correct?
A What is the meaning of panel'?
Q All indications necessary for men on the bridge to be informed of the movements of the ship?
A That is right.
Q And whatever sound the captain... Capt. Gavino would hear from the bridge, you could also hear?
A That is right.
Q Now, you said that when the command to lower the anchor was given, it was obeyed, is that right?
A This command was executed by the third mate and boatswain.
Court (to the witness)
Q Mr. Witness, earlier in today's hearing, you said that you did not intervene with the duties of the pilot
and that, in your opinion, you can only intervene if the ship is placed in imminent danger, is that
correct?
A That is right, I did say that.
Q In your observation before the incident actually happened, did you observe whether or not the ship,
before the actual incident, the ship was placed in imminent danger?.
A No sir, I did not observe.
Q By that answer, are you leading the court to understand that because you did not intervene and because
you believed that it was your duty to intervene when the vessel is placed in imminent danger to
which you did not observe any imminent danger thereof, you have not intervened in any manner to
the command of the pilot?
A That is right, sir.
xxxxxxxxx
Q Assuming that you disagreed with the pilot regarding the step being taken by the pilot in maneuvering
the vessel. whose command will prevail, in case of imminent danger to the vessel?
A I did not consider the situation as having an imminent danger. I believed that the vessel will dock
alongside the pier.
Q You want us to understand that you did not see an imminent danger to your ship, is that what you mean?
A Yes sir, up to the very last moment, I believed that there was no imminent danger.
Q Because of that, did you ever intervene in the command of the pilot?
A Yes sir, I did not intervene because I believed that the command of the pilot to be correct.
Solicitor Abad (to the witness)
Q As a captain of M/V Pavlodar, you consider docking maneuvers a serious matter, is it not?
A Yes sir, that is right.
Q Since it affects not only the safety of the port or pier, but also the safety of the vessel and the cargo, is it
not?
A That is right.
Q So that, I assume that you were watching Capt. Gavino very closely at the time he was making his
commands?
A I was close to him, I was hearing his command and being executed.
Q And that you were also alert for any possible mistakes he might commit in the maneuvering of the
vessel?
A Yes sir, that is right.
Q But at no time during the maneuver did you issue order contrary to the orders Capt. Gavino made?
A No sir.
Q So that you were in full accord with all of Capt. Gavino's orders?
A Yes sir.
Q Because, otherwise, you would have issued order that would supersede his own order?
A In that case, I should take him away from his command or remove the command from him.
 Court (to the witness) Court:
Q You were in full accord with the steps being taken by Capt. Gavino because you relied on his knowledge, May proceed.
on his familiarity of the seabed and shoals and other surroundings or conditions under the sea, is that Atty. Catris:
correct? In fact, the Master of the vessel testified here that he was all along in conformity with the orders you
A Yes sir, that is right. gave to him, and, as matter of fact, as he said, he obeyed all your orders. Can you tell, if in the course
xxxxxxxxx of giving such normal orders for the saf(e) docking of the MV Pavlodar, do you remember of any
Solicitor Abad (to the witness) instance that the Master of the vessel did not obey your command for the safety docking of the MV
Q And so after the anchors were ordered dropped and they did not take hold of the seabed, you were Pavlodar?
alerted that there was danger already on hand? Atty. del Rosario:
A No sir, there was no imminent danger to the vessel. Already answered, he already said yes sir.
Q Do you mean to tell us that even if the anchor was supposed to take hold of the bottom and it did not, Court:
there was no danger to the ship? Yes, he has just answered yes sir to the Court that there was no disagreement insofar as the bringing
A Yes sir, because the anchor dragged on the ground later. of the vessel safely to the port.
Q And after a few moments when the anchor should have taken hold the seabed but not done (sic), as you Atty. Catris:
expected, you already were alerted that there was danger to the ship, is that correct? But in this instance of docking of the MV Pavlodar, do you remember of a time during the course of
A Yes sir, I was alerted but there was no danger. the docking that the MV Pavlodar was in imminent danger of bumping the pier?
Q And you were alerted that somebody was wrong? A When we were about more than one thousand meters from the pier. I think, the anchor was not holding,
A Yes sir, I was alerted. so I immediately ordered to push the bow at a fourth quarter, at the back of the vessel in order to
Q And this alert you assumed was the ordinary alertness that you have for normal docking? swing the bow away from the pier and at the same time, I ordered for a full astern of the engine." [75]
A Yes sir, I mean that it was usual condition of any man in time of docking to be alert. These conflicting reactions can only imply, at the very least, unmindful disregard or, worse, neglectful
Q And that is the same alertness when the anchor did not hold onto the ground, is that correct? relinquishment of duty by the shipmaster, tantamount to negligence.
A Yes sir, me and Capt. Gavino (thought) that the anchor will hold the ground. The findings of the trial court on this aspect is noteworthy:
Q Since, as you said that you agreed all the while with the orders of Capt. Gavino, you also therefore agreed For, while the pilot Gavino may indeed have been charged with the task of docking the vessel in the
with him in his failure to take necessary precaution against the eventuality that the anchor will not berthing space, it is undisputed that the master of the vessel had the corresponding duty to countermand any
hold as expected? of the orders made by the pilot, aid even maneuver the vessel himself, in case of imminent danger to the vessel
Atty. Del Rosario: and the port.
May I ask that the question ... In fact, in his testimony, Capt. Kavankov admitted that all throughout the man(eu)vering procedures he
Solicitor Abad: did not notice anything was going wrong, and even observed that the order given to drop the anchor, was done
Never mind, I will reform the question. at the proper time. He even ventured the opinion that the accident occurred because the anchor failed to take
xxxxxxxxx hold but that this did not alarm him because there was still time to drop a second anchor.
Solicitor Abad (to the witness) Under normal circumstances, the above-mentioned facts would have caused the master of a vessel to
Q Is it not a fact that the vessel bumped the pier? take charge of the situation and see to the man(eu)vering of the vessel himself. Instead, Capt.Kavankov chose
A That is right, it bumped the pier. to rely blindly upon his pilot, who by this time was proven ill-equipped to cope with the situation.
Q For the main reason that the anchor of the vessel did not hold the ground as expected? xxxxxxxxx
A Yes sir, that is my opinion.[73] It is apparent that Gavino was negligent but Far Eastern's employee Capt. Kavankov was no less
Further, on redirect examination, Capt. Kabankov fortified his apathetic assessment of the situation: responsible for as master of the vessel he stood by the pilot during the man(eu)vering procedures and was
Q Now, after the anchor was dropped, was there any point in time that you felt that the vessel was in privy to every move the latter made, as well as the vessel's response to each of the commands. His choice to
imminent danger. rely blindly upon the pilot's skills, to the point that despite being appraised of a notice of alert he continued to
A No, at that time, the vessel was not in imminent danger, sir."[74] relinquish control of the vessel to Gavino, shows indubitably that he was not performing his duties with the
This cavalier appraisal of the event by Capt. Kabankov is disturbingly antipodal to Capt. Gavino's anxious diligence required of him and therefore may be charged with negligence along with defendant Gavino. [76]
assessment of the situation: As correctly affirmed by the Court of Appeals -
Q When a pilot is on board a vessel, it is the pilot's command which should be followed-at that moment We are in full accord with the findings and disquisitions of the Court a quo.
until the vessel is, or goes to port or reaches port? In the present recourse, Captain Viktor Kavankov had been a mariner for thirty-two years before the
A Yes, your Honor, but it does not take away from the Captain his prerogative to countermand the pilot. incident. When Gavino was (in) the command of the vessel, Kavankov was beside Gavino, relaying the
Q In what way? commands or orders of Gavino to the crewmembers-officers of the vessel concerned. He was thus fully aware
A In any case, which he thinks the pilot is not maneuvering correctly, the Captain always has the of the docking maneuvers and procedure Gavino undertook to dock the vessel. Irrefragably, Kavankov was
prerogative to countermand the pilot's order. fully aware of the bulk and size of the vessel and its cargo as well as the weight of the vessel. Kavankov
Q But insofar as competence, efficiency and functional knowledge of the seabed which are vital or decisive categorically admitted that, when the anchor and two (2) shackles were dropped to the sea floor, the claws of
in the safety (sic) bringing of a vessel to the port, he is not competent? the anchor did not hitch on to any hard object in the seabed. The momentum of the vessel was not
A Yes, your Honor. That is why they hire a pilot in an advisory capacity, but still, the safety of the vessel arrested. The use of the two (2) tugboats was insufficient. The momentum of the vessel, although a little bit
rest(s) upon the Captain, the Master of the vessel. arrested, continued (sic) the vessel going straightforward with its bow towards the port (Exhibit "A-1"). There
Q In this case, there was not a disagreement between you and the Captain of the vessel in the bringing of was thus a need for the vessel to move "full-astern" and to drop the other anchor with another shackle or two
the vessel to port? '(2), for the vessel to avoid hitting the pier. Kavankov refused to act even as Gavino failed to act. Even as
A No, your Honor. Gavino gave mere "half-astern" order, Kavankov supinely stood by. The vessel was already about twenty (20)
meters away from the pier when Gavino gave the 'full-astern" order.Even then, Kavankov did nothing to
prevent the vessel from hitting the pier simply because he relied on the competence and plan of Gavino. While
the "full-astern" maneuver momentarily arrested the momentum of the vessel, it was, by then, too late. All
along, Kavankov stood supinely beside Gavino, doing nothing but relay the commands of Gavino. Inscrutably,
then, Kavankov was negligent.
xxxxxxxxx
The stark incompetence of Kavankov is competent evidence to prove the unseaworthiness of the vessel.It has
been held that the incompetence of the navigator, the master of the vessel or its crew makes the vessel
unseaworthy (Tug Ocean Prince versus United States of America, 584 F. 2nd, page 1151).Hence, the Appellant
FESC is likewise liable for the damage sustained by the Appellee."[77]
We find strong and well-reasoned support in time-tested American maritime jurisprudence, on which
much of our laws and jurisprudence on the matter are based, for the conclusions of the Court of Appeals
adjudging both Capt. Gavino and Capt. Kabankov negligent.
As early as 1869, the U.S. Supreme Court declared, through Mr. Justice Swayne, in The Steamship China
vs. Walsh,[78] that it is the duty of the master to interfere in cases of the pilot's intoxication or manifest
incapacity, in cases of danger which he does not foresee, and in all cases of great necessity. The master has the
same power to displace the pilot that he has to remove any subordinate officer of the vessel, at his discretion.
In 1895, the U.S. Supreme Court, this time through Mr. Justice Brown, emphatically ruled that:
Nor are we satisfied with the conduct of the master in leaving the pilot in sole charge of the vessel.While the
pilot doubtless supersedes the master for the time being in the command and navigation of the ship, and his
orders must be obeyed in all matters connected with her navigation, the master is not wholly absolved from
his duties while the pilot is on board, and may advise with him, and even displace him in case he is intoxicated
or manifestly incompetent. He is still in command of the vessel, except so far as her navigation is concerned,
and bound to see that there is a sufficient watch on deck, and that the men are attentive to their duties.
xxx (N)otwithstanding the pilot has charge, it is the duty of the master to prevent accident, and not to
abandon the vessel entirely to the pilot; but that there are certain duties he has to discharge (notwithstanding
there is a pilot on board) for the benefit of the owners. x x x that in well conducted ships the master does
not regard the presence of a duly licensed pilot in compulsory pilot waters as freeing him from every obligation to
attend to the safety of the vessel; but that, while the master sees that his officers and crew duly attend to the
pilot's orders, he himself is bound to keep a vigilant eye on the navigation of the vessel, and, when exceptional
circumstances exist, not only to urge upon the pilot to use every precaution, but to insist upon, such being
taken."[79] (Italics for emphasis.)
In Jure vs. United Fruit Co.,[80] which, like the present petitions, involved compulsory pilotage, with a
similar scenario where at and prior to the time of injury, the vessel was in the charge of a pilot with the master
on the bridge of the vessel beside said pilot, the court therein ruled:
The authority of the master of a vessel is not in complete abeyance while a pilot, who is required by law
to be accepted, is in discharge of his functions. x x x It is the duty of the master to interfere in cases of the
pilot's intoxication or manifest incapacity, in cases of danger which he does not foresee, and in all cases of
great necessity . The master has the same power to displace the pilot that he has to remove any subordinate
officer of the vessel. He may exercise it, or not, according to his discretion. There was evidence to support
findings that plaintiff's injury was due to the negligent operation of the Atenas, and that the master of that
vessel was negligent in failing to take action to avoid endangering a vessel situated as the City of Canton was
and persons or property thereon.
A phase of the evidence furnished support for the inferences x x x that he negligently failed to suggest to
the pilot the danger which was disclosed, and means of avoiding such danger; and that the master's negligence
in failing to give timely admonition to the pilot proximately contributed to the injury complained of. We are of
opinion that the evidence mentioned tended to prove conduct of the pilot, known to the master, giving rise to a
case of danger or great necessity, calling for the intervention of the master. A master of a vessel is not Without
fault in acquiescing in conduct of a pilot which involves apparent and avoidable danger, whether such danger is
to the vessel upon which the pilot is, or to another vessel, or persons or property thereon or on shore. (Italics
ours.)
Still in another case involving a nearly identical setting, the captain of a vessel alongside the compulsory pilot
was deemed to be negligent, since, in the words of the court, "he was in a position to exercise his superior
authority if he had deemed the speed excessive on the occasion in question. I think it wasclearly negligent of
him not to have recognized the danger to any craft moored at Gravell Dock and that he should have directed the
pilot to reduce his speed as required by the local governmental regulations.His failure amounted to negligence
and renders the respondent liable."[81] (Italics supplied.) Though a compulsory pilot might be regarded as an
independent contractor, he is at all times subject to the ultimate control of the ship's master.[82]
In sum, where a compulsory pilot is in charge of a ship, the master being required to permit him to
navigate it, if the master observes that the pilot is incompetent or physically incapable, then it is the duty of the
master to refuse to permit the pilot to act. But if no such reasons are present, then the master is justified in
relying upon the pilot, but not blindly. Under the circumstances of this case, if a situation arose where the
master, exercising that reasonable vigilance which the master of a ship should exercise, observed, or should
have observed, that the pilot was so navigating the vessel that she was going, or was likely to go, into danger,
and there was in the exercise of reasonable care and vigilance an opportunity for the master to intervene so as
to save the ship from danger, the master should have acted accordingly.[83] The master of a vessel must
exercise a degree of vigilance commensurate with the circumstances.[84]
Inasmuch as the matter of negligence is a question of fact,[85] we defer to the findings of the trial court,
especially as this is affirmed by the Court of Appeals.[86] But even beyond that, our own evaluation is that
Capt. Kabankov's shared liability is due mainly to the fact that he failed to act when the perilous situation
should have spurred him into quick and decisive action as master of the ship. In the face of imminent or actual
danger, he did not have to wait for the happenstance to occur before countermanding or overruling the
pilot. By his own admission, Capt. Kabankov concurred with Capt. Gavino's decisions, and this is precisely the
reason why he decided not to countermand any of the latter's orders. Inasmuch as both lower courts found
Capt. Gavino negligent, by expressing full agreement therewith Capt.Kabankov was just as negligent as
Capt. Gavino.
In general, a pilot is personally liable for damages caused by his own negligence or default to the owners
of the vessel, and to third parties for damages sustained in a collision. Such negligence of the pilot in the
performance of duty constitutes a maritime tort.[87] At common law, a shipowner is not liable for injuries
inflicted exclusively by the negligence of a pilot accepted by a vessel compulsorily.[88] The exemption from
liability for such negligence shall apply if the pilot is actually in charge and solely in fault.Since, a pilot is
responsible only for his own personal negligence, he cannot be held accountable for damages proximately
caused by the default of others,[89] or, if there be anything which concurred with the fault of the pilot in
producing the accident, the vessel master and owners are liable.
Since the colliding vessel is prima facie responsible, the burden of proof is upon the party claiming
benefit of the exemption from liability. It must be shown affirmatively that the pilot was at fault, and that there
was no fault on the part of the officers or crew, which might have been conducive to the damage.The fact that
the law compelled the master to take the pilot does not exonerate the vessel from liability.The parties who
suffer are entitled to have their remedy against the vessel that occasioned the damage, and are not under
necessity to look to the pilot from whom redress is not always had for compensation.The owners of the vessel
are responsible to the injured party for the acts of the pilot, and they must be left to recover the amount as well
as they can against him. It cannot be maintained that the circumstance of having a pilot on board, and acting in
conformity to his directions operate as a discharge of responsibility of the owners.[90] Except insofar as their
liability is limited or exempted by statute, the vessel or her owner are liable for all damages caused by the
negligence or other wrongs of the owners or those in charge of the vessel. Where the pilot of a vessel is not a
compulsory one in the sense that the owner or master of the vessel are bound to accept him, but is employed
voluntarily, the owners of the vessel are, all the more, liable for his negligent act.[91]
In the United States, the owners of a vessel are not personally liable for the negligent acts of a
compulsory pilot, but by admiralty law, the fault or negligence of a compulsory pilot is imputable to the vessel
and it may be held liable therefor in rem. Where, however, by the provisions of the statute the pilot is
compulsory only in the sense that his fee must be paid, and is not in compulsory charge of the vessel, there is
no exemption from liability. Even though the pilot is compulsory, if his negligence was not the sole cause of the
injury, but the negligence of the master or crew contributed thereto, the owners are liable.[92] But the liability
of the ship in rem does not release the pilot from the consequences of his own negligence.[93] The rationale for
this rule is that the master is not entirely absolved of responsibility with respect to navigation when a
compulsory pilot is in charge.[94]
By way of validation and in light of the aforecited guidepost rulings in American maritime cases, we
declare that our rulings during the early years of this century in City of Manila vs. Gambe, [95] China Navigation
Co., Ltd. vs. Vidal,[96] and Yap Tico & Co. vs. Anderson, et al.[97] have withstood the proverbial test of time and
remain good and relevant case law to this day.
City of Manila stands for the doctrine that the pilot who was in command and complete control of a
vessel, and not the owners, must be held responsible for an accident which was solely the result of the mistake
of the pilot in not giving proper orders, and which did not result from the failure of the owners to equip the
vessel with the most modern and improved machinery. In China Navigation Co., the pilot deviated from the
ordinary and safe course, without heeding the warnings of the ship captain. It was this careless deviation that
caused the vessel to collide with a pinnacle rock which, though uncharted, was known to pilots and local
navigators. Obviously, the captain was blameless. It was the negligence of the pilot alone which was the
proximate cause of the collision. The Court could not but then rule that -
The pilot in the case at bar having deviated from the usual and ordinary course followed by navigators in
passing through the strait in question, without a substantial reason, was guilty of negligence, and that
negligence having been the proximate cause of the damages, he is liable for such damages as usually and
naturally flow therefrom. x x x.
x x x (T)he defendant should have known of the existence and location of the rock upon which the vessel
struck while under his control and management. x x x.
Consistent with the pronouncements in these two earlier cases, but on a slightly different tack, the Court
in Yap Tico & Co. exonerated the pilot from liability for the accident where the order's of the pilot in the
handling of the ship were disregarded by the officers and crew of the ship. According to the Court, a pilot is "x x
x responsible for a full knowledge of the channel and the navigation only so far as he can accomplish it through
the officers and crew of the ship, and I don't see that he can be held responsible for damage when the evidence
shows, as it does in this case, that the officers and crew of the ship failed to obey his orders." Nonetheless, it is
possible for a compulsory pilot and the master of the vessel to be concurrently negligent and thus share the
blame for the resulting damage as Joint tortfeasors,[98] but only under the circumstances obtaining in and
demonstrated by the instant petitions.
It may be said, as a general rule, that negligence in order to render a person liable need not be the sole
cause of an injury. It is sufficient that his negligence, concurring with one or more efficient causes other than
plaintiff's, is the proximate cause of the injury. Accordingly, where several causes combine to produce injuries,
a person is not relieved from liability because he is responsible for only one of them, it being sufficient that the
negligence of the person charged with injury is an efficient cause without which the injury would not have
resulted to as great an extent, and that such cause is not attributable to the person injured. It is no defense to
one of the concurrent tortfeasors that the injury would not have resulted from his negligence alone, without
the negligence or wrongful acts of the other concurrent tortfeasor.[99]Where several causes producing an
injury are concurrent and each is an efficient cause without which the injury would not have happened, the
injury may be attributed to all or any of the causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the case, it may appear that one of them was more
culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence ceases
to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is
responsible for the entire result and is liable as though his acts were the sole cause of the injury. [100]
There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable
for the total damage. Where the concurrent or successive negligent acts or omissions of two or more persons,
although acting independently, are in combination the direct and proximate cause of a single injury to a third
person, it is impossible to determine in what proportion each contributed to the injury and either of them is
responsible for the whole injury. Where their concurring negligence resulted in injury or damage to a third
party, they become joint tortfeasors and are solidarity liable for the resulting damage under Article 2194 [101] of
the Civil Code.[102]
As for the amount of damages awarded by the trial court, we find the same to be reasonable. The
testimony of Mr. Pascual Barral, witness for PPA, on cross and redirect examination, appears to be grounded
on practical considerations:
Q So that the cost of the two additional piles as well as the (two) square meters is already included in this -
P1,300,999.77.
A Yes sir, everything. It is (the) final cost already.
Q For the eight piles.
A Including the reduced areas and other reductions.
Q (A)nd the two square meters.
A Yes sir.
Q In other words, this P1,300,999.77 does not represent only for the six piles that was damaged as well as
the corresponding two piles.
A The area was corresponding, was increased by almost two in the actual payment. That was why the
contract was decreased, the real amount was P1,124,627.40 and the final one is P1300,999.77.
Q Yes, but that P1,300,999.77 included the additional two new posts.
A It was increased.
Q Why was it increased?
A The original was 48 and the actual was 46.
Q Now, the damage was somewhere in 1980. It took place in 1980 and you started the repair and
reconstruction in 1982, that took almost two years?
A Yes sir.
Q May it not happen that by natural factors, the existing damage in 1980 was aggravated for the 2 year
period that the damage portion was not repaired?
A I don't think so because that area was at once marked and no vehicles can park, it was closed.
Q Even if or even natural elements cannot affect the damage?
A Cannot, sir.
xxxxxxxxx
Q You said in the cross-examination that there were six piles damaged by the accident, but that in the
reconstruction of the pier, PPA drove and constructed 8 piles. Will you explain to us why there was
change in the number of piles from the original number?
A In piers where the piles are withdrawn or pulled out, you cannot re-drive or drive piles at the same
point.You have to redesign the driving of the piles. We cannot drive the piles at the same point where
the piles are broken or damaged or pulled out. We have to redesign, and you will note that in the
reconstruction, we redesigned such that it necessitated 8 piles.
Q Why not, why could you not drive the same number of piles and on the same spot?
A The original location was already disturbed. We cannot get required bearing capacity. The area is already
disturbed.
Q Nonetheless, if you drove the original number of piles, six, on different places, would not that have
sustained the same load?
A It will not suffice, sir."[103]
We quote the findings of the lower court with approval:
With regards to the amount of damages that is to be awarded to plaintiff, the Court finds that the amount
of P1,053,300.00 is justified. Firstly, the doctrine of res ipsa loquitur best expounded upon in the landmark case
of Republic vs. Luzon Stevedoring Corp. (21 SCRA 279) establishes the presumption that in the ordinary
course of events the ramming of the dock would not have occurred if proper care was used.
Secondly, the various estimates and plans justify the cost of the port construction price. The new structure
constructed not only replaced the damaged one but was built of stronger materials to forestall the possibility
of any similar accidents in the future.
The Court inevitably finds that the plaintiff is entitled to an award of P1,053,300.00 which represents actual
damages caused by the damage to Berth 4 of the Manila International Port. Co-defendants Far Eastern
Shipping, Capt. Senen Gavino and Manila Pilots Association are solidarity liable to pay this amount to
plaintiff.[104]
The Solicitor General rightly commented that the adjudicated amount of damages represents the proportional
cost of repair and rehabilitation of the damaged section of the pier.[105]
Except insofar as their liability is limited or exempted by statute, the vessel or her owners are liable for
all damages caused by the negligence or other wrongs of the owners or those in charge of the vessel.As a
general rule, the owners or those in possession and control of a vessel and the vessel are liable for all natural
and proximate damages caused to persons or property by reason of her negligent management or
navigation.[106]
FESC's imputation of PPA's failure to provide a safe and reliable berthing place is obtuse, not only
because it appears to be a mere afterthought, being tardily raised only in this petition, but also because there is
no allegation or evidence on record about Berth No. 4 being unsafe and unreliable, although perhaps it is a
modest pier by international standards. There was, therefore, no error on the part of the Court of Appeals in
dismissing FESC's counterclaim.
II. G.R. No. 130150
This consolidated case treats on whether the Court of Appeals erred in holding MPA jointly and solidarity
liable with its member pilot, Capt. Gavino, in the absence of employer-employee relationship and in applying
Customs Administrative Order No. 15-65, as basis for the adjudged solidary liability of MPA and Capt. Gavino.
The pertinent provisions in Chapter I of Customs Administrative Order No. 15-65 are:
"PAR. XXVII.-- In all pilotage districts where pilotage is compulsory, there shall be created and maintained by
the pilots or pilots' association, in the manner hereinafter prescribed, a reserve fund equal to P1,000.00 for
each pilot thereof for the purpose of paying claims for damages to vessels or property caused through acts or
omissions of its members while rendered in compulsory pilotage service. In Manila, the reserve fund shall
be P2,000.00 for each pilot.
PAR. XXVIII.-- A pilots' association shall not be liable under these regulations for damage to any vessel, or other
property, resulting from acts of a member of an association in the actual performance of his duty for a greater
amount than seventy-five per centum (75%) of its prescribed reserve fund; it being understood that if the
association is held liable for an amount greater than the amount above-stated, the excess shall be paid by the
personal funds of the member concerned.
PAR. XXXI.-- If a payment is made from the reserve fund of an association on account of damages caused by a
member thereof, and he shall have been found at fault, such member shall reimburse the association in the
amount so paid as soon as practicable; and for this purpose, not less than twenty-five per centum of his
dividends shall be retained each month until the full amount has been returned to the reserve fund.
PAR. XXXIV. - Nothing in these regulations shall relieve any pilots' association or members thereof, individually
or collectively, from civil responsibility for damages to life or property resulting from the acts of members in
the performance of their duties.
Correlatively, the relevant provisions of PPA Administrative Order No. 03-85, which timely amended this
applicable maritime regulation, state:
Article IV
SEC. 17. Pilots' Association -- The Pilots in a Pilotage District shall organize themselves into a Pilots' Association
or firm, the members of which shall promulgate their own By-Laws not in conflict with the rules and
regulations promulgated by the Authority. These By-Laws shall be submitted not later than one (1) month
after the organization of the Pilots' Association for approval by the General Manager of the
Authority. Subsequent amendments thereto shall likewise be submitted for approval.
SEC. 25. Indemnity Insurance and Reserve Fund--
a) Each Pilots' Association shall collectively insure its membership at the rate ofP50,000.00
each member to cover in whole or in part any liability arising from any accident
resulting in damage to vessel(s), port facilities and other properties and/or injury
to persons or death which any member may have caused in the course of his
performance of pilotage duties. x x x.
b) The Pilotage Association shall likewise set up and maintain a reserve fund which shall
answer for any part of the liability referred to in the immediately preceding
paragraph which is left unsatisfied by the insurance proceeds, in the following
manner:
1) Each pilot in the Association shall contribute from his own account an amount
ofP4,000.00 (P6,000.00 in the Manila Pilotage District) to the reserve fund. This
fund shall not be considered part of the capital of the Association nor charged as
an expense thereof.
2) Seventy-five percent (75%) of the reserve fund shall be set aside for use, in the
payment of damages referred to above incurred in the actual performance of
pilots' duties and the excess shall be paid from the personal funds of the member
concerned.
xxxxxxxxx
5) If payment is made from the reserve fund of an Association on account of damage
caused by a member thereof who is found at fault, he shall reimburse the
Association in the amount so paid as soon as practicable; and for this purpose,
not less than twenty-five percentum (25%) of his dividend shall be retained each
month until the full amount has been returned to the reserve fund. Thereafter,
the pilot involved shall be entitled to his full dividend.
6) When the reimbursement has been completed as prescribed in the preceding
paragraph, the ten percentum (10%) and the interest withheld from the shares of
the other pilots in accordance with paragraph (4) hereof shall be returned to
them.
c) Liability of Pilots' Association -- Nothing in these regulations shall relieve any Pilots'
Association or members thereof, individually or collectively, from any civil,
administrative and/or criminal responsibility for damages to life or property
resulting from the individual acts of its members as well as those of the
Association's employees and crew in the performance of their duties.
The Court of Appeals, while affirming the trial court's finding of solidary liability on the part of FESC,
MPA and Capt. Gavino, correctly based MPA's liability not on the concept of employer-employee relationship
between Capt. Gavino and itself, but on the provisions of Customs Administrative Order No. 15-65:
The Appellant MPA avers that, contrary to the findings and disquisitions of the Court a quo, the Appellant
Gavino was not and has never been an employee of the MPA but was only a member thereof. The Court a quo,
it is noteworthy,, did not state the factual basis on which it anchored its finding that Gavino was the employee
of MPA. We are in accord with MPA's pose. Case law teaches Us that, for an employer-employee relationship to
exist the confluence of the following elements must be established: (1) selection and engagement of
employees; (2) the payment of wages; (3) the power of dismissal; (4) the employer's power to control the
employees with respect to the means and method by which the work is to be performed (Ruga versus NLRC,
181SCRA 266).
xxxxxxxxx
The liability of MPA for damages is not anchored on Article 2180 of the New Civil Code as erroneously found
and declared by the Court a quo but under the provisions of Customs Administrative Order No. 15-65, supra, in
tandem with the by-laws of the MPA."[107]
There being no employer-employee relationship, clearly Article 2180[108] of the Civil Code is inapplicable
since there is no vicarious liability of an employer to speak of. It is so stated in American law, as follows:
The well-established rule is that pilot associations are immune to vicarious liability for the tort of their
members. They are not the employer of their members and exercise no control over them once they take the
helm of the vessel. They are also not partnerships because the members do not function as agents for the
association or for each other. Pilots' associations are also not liable for negligently assuring, the competence of
their members because as professional associations they made no guarantee of the professional conduct of
their members to the general public.[109]
Where under local statutes and regulations, pilot associations lack the necessary legal incidents of
responsibility, they have been held not liable for damages caused by the default of a member pilot. [110]Whether
or not the members of a pilots' association are in legal effect a copartnership depends wholly on the powers
and duties of the members in relation to one another under the provisions of the governing statutes and
regulations. The relation of a pilot to his association is not that of a servant to the master, but of an associate
assisting and participating in a common purpose. Ultimately, the rights and liabilities between a pilots'
association and an individual member depend largely upon the constitution, articles or by-laws of the
association, subject to appropriate government regulations.[111]
No reliance can be placed by MPA on the cited American rulings as to immunity from liability of a pilots'
association in light of existing positive regulation under Philippine law. The Court of Appeals properly applied
the clear and unequivocal provisions of Customs Administrative Order No. 15-65. In doing so, it was just being
consistent with its finding of the non-existence of employer-employee relationship between MPA and Capt.
Gavino precludes the application of Article 2180 of the Civil Code.
True, Customs Administrative Order No. 15-65 does not categorically characterize or label MPA's liability
as solidary in nature. Nevertheless, a careful reading and proper analysis of the correlated provisions lead to
the conclusion that MPA is solidarity liable for the negligence of its member pilots, without prejudice to
subsequent reimbursement from the pilot at fault.
Article 1207 of the Civil Code provides that there is solidary liability only when the obligation expressly
so states, or when the law or the nature of the obligation requires solidarity. Plainly, Customs Administrative
Order No. 15-65, which as an implementing rule has the force and effect of law, can validly provide for solidary
liability. We note the Solicitor General's comment hereon, to wit:
x x x Customs Administrative Order No. 15-65 may be a mere rule and regulation issued by an administrative
agency pursuant to a delegated authority to fix "the details" in the execution or enforcement of a policy set out
in the law itself. Nonetheless, said administrative order, which adds to the procedural or enforcing provisions
of substantive law, is legally binding and receives the same statutory force upon going into effect. In that sense,
it has equal, not lower, statutory force and effect as a regular statute passed by the legislature."[112]
MPA's prayer for modification of the appellate court's decision under review by exculpating petitioner
MPA "from liability beyond seventy-five percent (75%) of Reserve Fund" is unnecessary because the liability
of MPA under Par. XXVIII of Customs Administrative Order No. 15-65 is in fact limited to seventy-five percent
(75%) of its prescribed reserve fund, any amount of liability beyond that being for the personal account of the
erring pilot and subject to reimbursement in case of a finding of fault by the member concerned. This is
clarified by the Solicitor General:
Moreover, contrary to petitioners pretensions, the provisions of Customs Administrative Order No. 15-65 do
not limit the liability of petitioner as a pilots' association to an absurdly small amount of seventy-five per
centum (75%) of the member pilots' contribution of P2,000.00 to the reserve fund. The law speaks of the
entire reserve fund required to be maintained by the pilots' association to answer (for) whatever liability
arising from the tortious act of its members. And even if the association is held liable for an amount greater
than the reserve fund, the association may not resist the liability by claiming to be liable only up to seventy-
five per centum (75%) of the reserve fund because in such instance it has the right to be reimbursed by the
offending member pilot for the excess."[113]
WHEREFORE, in view of all of the foregoing, the consolidated petitions for review are DENIED and the
assailed decision of the Court of Appeals is AFFIRMED in toto.
Counsel for FESC, the law firm of Del Rosario and Del Rosario, specifically its associate, Atty.Herbert A.
Tria, is REPRIMANDED and WARNED that a repetition of the same or similar acts of heedless disregard of its
undertakings under the Rules shall be dealt with more severely.
The original members of the legal team of the Office of the Solicitor General assigned to this case, namely,
Assistant Solicitor General Roman G. Del Rosario and Solicitor Luis F. Simon, are ADMONISHED and WARNED
that a repetition of the same or similar acts of unduly delaying proceedings due to delayed filing of required
pleadings shall also be dealt with more stringently.
The Solicitor General is DIRECTED to look into the circumstances of this case and to adopt provident
measures to avoid a repetition of this incident and which would ensure prompt compliance with orders of this
Court regarding the timely filing of requisite pleadings, in the interest of just, speedy and orderly
administration of justice.
Let copies of this decision be spread upon the personal records of the lawyers named herein in the Office
of the Bar Confidant.
SO ORDERED.
Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Panganiban, Martinez,
Quisumbingand Purisima, JJ., concur.
Narvasa, C.J., and Mendoza, J., on leave.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-51910 August 10, 1989
LITONJUA SHIPPING COMPANY INC., petitioner
vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.
Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.
Estratonico S. Anano for private respondent.
FELICIANO, J.:
In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks to annul and set
aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB") in NSB Case No. 1331-77 affirming
the decision dated 17 February 1977 of the NSB hearing officer which adjudged petitioner Litonjua liable to
private respondent for violation of the latter's contract of employment and which ordered petitioner to pay
damages.
Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping Corporation
('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign registry owned by the R.D. Mullion Ship
Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the Dufton Bay was in the port of Cebu and
while under charter by Fairwind, the vessel's master contracted the services of, among others, private
respondent Gregorio Candongo to serve as Third Engineer for a period of twelve (12) months with a monthly
wage of US$500.00. This agreement was executed before the Cebu Area Manning Unit of the NSB. Thereafter,
private respondent boarded the vessel. On 28 December 1976, before expiration of his contract, private
respondent was required to disembark at Port Kelang, Malaysia, and was returned to the Philippines on 5
January 1977. The cause of the discharge was described in his Seaman's Book as 'by owner's arrange". 1
Shortly after returning to the Philippines, private respondent filed a complaint before public respondent NSB,
which complaint was docketed as NSB-1331-77, for violation of contract, against Mullion as the shipping
company and petitioner Litonjua as agent of the shipowner and of the charterer of the vessel.
At the initial hearing, the NSB hearing officer held a conference with the parties, at which conference petitioner
Litonjua was represented by one of its supercargos, Edmond Cruz. Edmond Cruz asked, in writing, that the
hearing be postponed for a month upon the ground that the employee of Litonjua in charge of the case was out
of town. The hearing officer denied this request and then declared petitioner Litonjua in default. At the
hearing, private respondent testified that when he was recruited by the Captain of the Dufton Bay, the latter
was accompanied to the NSB Cebu Area Manning Unit by two (2) supercargos sent by petitioner Litonjua to
Cebu, and that the two (2) supercargos Edmond Cruz and Renato Litonjua assisted private respondent in the
procurement of his National Investigation and Security Agency (NISA) clearance. Messrs. Cruz and Litonjua
were also present during private respondent's interview by Captain Ho King Yiu of the Dufton Bay.
On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, 2 the dispositive portion
of which read:
Wherefore, premises considered, judgment is hereby rendered ordering the respondents
R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc., jointly and solidarily to
pay the complainant the sum of four thousand six hundred fifty seven dollars and sixty
three cents ($4,657.63) or its equivalent in the Phil. currency within 10 days from receipt of
the copy of this Decision the payment of which to be coursed through the then NSB.
The above conclusion was rationalized in the following terms:
From the evidence on record it clearly appears that there was no sufficient or valid cause
for the respondents to terminate the services of complainant prior to 17 September 1977,
which is the expiry date of the contract. For this reason the respondents have violated the
conditions of the contract of employment which is a sufficient justification for this Board to
render award in favor of the complainant of the unpaid salaries due the latter as damages
corresponding to the unexpired portion of the contract including the accrued leave pay
computed on the basis of five [51 days pay for every month of service based at $500.00
monthly salary. Complainant's wages account further show that he has an undrawn wage
amounting to US$13.19 to be paid by the respondents Philippine agency together with his
accrued leave pay. 3
Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the motion was denied.
Petitioner next filed an "Appeal and/or Motion for Reconsideration of the Default Judgment dated 9 August
1977" with the central office of the NSB. NSB then suspended its hearing officer's decision and lifted the order
of default against petitioner Litonjua, thereby allowing the latter to adduce evidence in its own behalf The NSB
hearing officer, on 26 April 1978, made the following findings:
While it appears that in the preparation of the employment papers of the complainant, what
was indicated therein was R.D. Mullion Co. (HK) Ltd. referring to Exhibit "B" (Standard
Format of a Service Agreement) and Exhibit "C" (Affidavit of Undertaking), as thecompany
whom Captain Ho King Yiu, the Master of the vessel Dufton Bay, was representing to be the
shipowner, the fact remains that at the time of the recruitment of the complainant, as duly
verified by the National Seamen Board, Cebu Area Manning Unit, the Litonjua Shipping
Company was the authorized agent of the vessel's charterer, the Fairwind Shipping
Corporation, and that in the recruitment process, the Litonjua Shipping Company through
its supercargos in the persons of Edmund Cruz and Renato Litonjua, had knowledge thereof
and in fact assisted in the interviews conducted by the Master of the crew applicants as
admitted by Renato Litonjua including the acts of facilitating the crew's NISA clearances as
testified to by complainant. Moreover, the participation of the Litonjua Shipping
Corporation in the recruitment of complainant, together with the other crewmembers, in
Cebu in September 1976 can be traced to the contents of the letter of April 5, 1976 by the
Fairwind Shipping Limited, thru its Director David H.L. Wu addressed to the National
Seamen Board, copy of which is on file with Contracts and Licensing Division, quote:
This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local crewing
Managing Office to attend on our Crew requirements as well as attend to our ship's
requirements when in Philippine ports.
We further authorized Litonjua Shipping Co., Inc. to act as local representative who can sue
and be sued, and to bind and sign contracts for our behalf. 4
The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.
Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public respondent NSB rendered a
decision 5 which affirmed its hearing offices decision of 17 February 1977 and which read in part as follows:
It is clear that respondent Litonjua Shipping Co., Inc. is the authorized Philippine agent of
Fairwind Shipping Corporation, charterer of the vessel 'Dufton Bay, wherein complainant,
served as 3rd Engineer from 17 September until disembarkation on December 28, 1976. It
is also clear from the complainant's wages account bearing the heading 'Fairwind Shipping
Corporation', signed by the Master of the vessel that the Philippine agency referred to herein
directed to pay the said withdrawn wages of $13.19 is no other than Litonjua Shipping
Company, Inc.
From this observation, it can be reasonably inferred that the master of the vessel acted for
and in behalf of Fairwind Shipping Corporation who had the obligation to pay the salary of the
complainant. It necessarily follows that Fairwind Shipping Corporation is the employer of
said complainant. Moreover, it had been established by complainant that Litonjua Shipping
Company, Inc., had knowledge of and participated, through its employee, in the recruitment of
herein complainant.
xxx xxx xxx
In view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the Philippines,
which provides that, 'The state shall afford protection to labor . . .' as well as the provisions
of Art. 4 thereof, that 'all doubts in the implementation and interpretation of the provisions
of the Code, including its implementing rules and regulations, shall be resolved in favor of
labor', it is our conclusion, that the decision dated February 17, 1977, is based on evidence
formally offered and presented during the hearing and that there was no grave abuse of
discretion committed by the hearing officer in finding respondent Litonjua Shipping Company,
Inc., liable to complainant. (Emphasis supplied)
In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent NSB
declaring the charterer Fairwind as employer of private respondent, and for whose liability petitioner was
made responsible, as constituting a grave abuse of discretion amounting to lack of jurisdiction. The principal if
not the sole issue to be resolved here is whether or not the charterer Fairwind was properly regarded as the
employer of private respondent Candongo.
Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit:
1) As a general rule, admiralty law as embodied in the Philippine Code of Commerce fastens
liability for payment of the crew's wages upon the ship owner, and not the charterer; and
2) The evidence of record is grossly inadequate to shift such liability from the shipowner to
the petitioner.6
Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private respondent;
and that liability for damages cannot be imposed upon petitioner which was a mere agent of the charterer. It is
insisted that private respondent's contract of employment and affidavit of undertaking clearly showed that the
party with whom he had contracted was none other than Mullion, the shipowner, represented by the ship's
master. 7Petitioner also argues that its supercargos merely assisted Captain Ho King Yiu of the Dufton Bay in
being private respondent as Third Engineer. Petitioner also points to the circumstance that the discharge and
the repatriation of private respondent was specified in his Seaman's Book as having been "by owner's
arrange." Petitioner Litonjua thus argues that being the agent of the charterer and not of the shipowner, it
accordingly should not have been held liable on the contract of employment of private respondent.
We are not persuaded by petitioner's argument. We believe that there are two (2) grounds upon which
petitioner Litonjua may be held liable to the private respondent on the contract of employment.
The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the charterer.
In modern maritime law and usage, there are three (3) distinguishable types of charter parties: (a) the
"bareboat" or "demise" charter; (b) the "time" charter; and (c) the "voyage" or "trip" charter. A bareboat or
demise charter is a demise of a vessel, much as a lease of an unfurnished house is a demise of real property.
The shipowner turns over possession of his vessel to the charterer, who then undertakes to provide a crew
and victuals and supplies and fuel for her during the term of the charter. The shipowner is not normally
required by the terms of a demise charter to provide a crew, and so the charterer gets the "bare boat", i.e.,
without a crew. 8 Sometimes, of course, the demise charter might provide that the shipowner is to furnish a
master and crew to man the vessel under the charterer's direction, such that the master and crew provided by
the shipowner become the agents and servants or employees of the charterer, and the charterer (and not the
owner) through the agency of the master, has possession and control of the vessel during the charter period. A
time charter, upon the other hand, like a demise charter, is a contract for the use of a vessel for a specified
period of time or for the duration of one or more specified voyages. In this case, however, the owner of a time-
chartered vessel (unlike the owner of a vessel under a demise or bare-boat charter), retains possession and
control through the master and crew who remain his employees. What the time charterer acquires is the right
to utilize the carrying capacity and facilities of the vessel and to designate her destinations during the term of
the charter. A voyage charter, or trip charter, is simply a contract of affreightment, that is, a contract for the
carriage of goods, from one or more ports of loading to one or more ports of unloading, on one or on a series of
voyages. In a voyage charter, master and crew remain in the employ of the owner of the vessel. 9
It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of the
vessel, the charterer assuming in large measure the customary rights and liabilities of the shipowner in
relation to third persons who have dealt with him or with the vessel. 10 In such case, the Master of the vessel is
the agent of the charterer and not of the shipowner.11 The charterer or owner pro hac vice, and not the general
owner of the vessel, is held liable for the expenses of the voyage including the wages of the seamen. 12
It is important to note that petitioner Litonjua did not place into the record of this case a copy of the charter
party covering the M/V Dufton Bay. We must assume that petitioner Litonjua was aware of the nature of a
bareboat or demise charter and that if petitioner did not see fit to include in the record a copy of the charter
party, which had been entered into by its principal, it was because the charter party and the provisions thereof
were not supportive of the position adopted by petitioner Litonjua in the present case, a position diametrically
opposed to the legal consequence of a bareboat charter.13 Treating Fairwind as owner pro hac vice, petitioner
Litonjua having failed to show that it was not such, we believe and so hold that petitioner Litonjua, as
Philippine agent of the charterer, may be held liable on the contract of employment between the ship captain
and the private respondent.
There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the contract of
employment of private respondent. The charterer of the vessel, Fairwind, clearly benefitted from the
employment of private respondent as Third Engineer of the Dufton Bay, along with the ten (10) other Filipino
crewmembers recruited by Captain Ho in Cebu at the same occasion. 14 If private respondent had not agreed to
serve as such Third Engineer, the ship would not have been able to proceed with its voyage. The equitable
consequence of this benefit to the charterer is, moreover, reinforced by convergence of other circumstances of
which the Court must take account. There is the circumstance that only the charterer, through the petitioner,
was present in the Philippines. Secondly, the scope of authority or the responsibility of petitioner Litonjua was
not clearly delimited. Petitioner as noted, took the position that its commission was limited to taking care of
vessels owned by Fairwind. But the documentary authorization read into the record of this case does not make
that clear at all. The words "our ships" may well be read to refer both to vessels registered in the name of
Fairwind and vessels owned by others but chartered by Fairwind. Indeed the commercial, operating
requirements of a vessel for crew members and for supplies and provisions have no relationship to the
technical characterization of the vessel as owned by or as merely chartered by Fairwind. In any case, it is not
clear from the authorization given by Fairwind to petitioner Litonjua that vessels chartered by Fairwind (and
owned by some other companies) were not to be taken care of by petitioner Litonjua should such vessels put
into a Philippine port. The statement of account which the Dufton Bay'sMaster had signed and which pertained
to the salary of private respondent had referred to a Philippine agency which would take care of disbursing or
paying such account. 'there is no question that Philippine agency was the Philippine agent of the charterer
Fairwind. Moreover, there is also no question that petitioner Litonjua did assist the Master of the vessel in
locating and recruiting private respondent as Third Engineer of the vessel as well as ten (10) other Filipino
seamen as crew members. In so doing, petitioner Litonjua certainly in effect represented that it was taking
care of the crewing and other requirements of a vessel chartered by its principal, Fairwind. 15
Last, but certainly not least, there is the circumstance that extreme hardship would result for the private
respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to private respondent
upon the contract of employment. Clearly, the private respondent, and the other Filipino crew members of the
vessel, would be defenseless against a breach of their respective contracts. While wages of crew members
constitute a maritime lien upon the vessel, private respondent is in no position to enforce that lien. If only
because the vessel, being one of foreign registry and not ordinarily doing business in the Philippines or making
regular calls on Philippine ports cannot be effectively held to answer for such claims in a Philippine forum.
Upon the other hand, it seems quite clear that petitioner Litonjua, should it be held liable to private respondent
for the latter's claims, would be better placed to secure reimbursement from its principal Fairwind. In turn,
Fairwind would be in an indefinitely better position (than private respondent) to seek and obtain recourse
from Mullion, the foreign shipowner, should Fairwind feel entitled to reimbursement of the amounts paid to
private respondent through petitioner Litonjua.
We conclude that private respondent was properly regarded as an employee of the charterer Fairwind and
that petitioner Litonjua may be held to answer to private respondent for the latter's claims as the agent in the
Philippines of Fairwind. We think this result, which public respondent reached, far from constituting a grave
abuse of discretion, is compelled by equitable principles and by the demands of substantial justice. To hold
otherwise would be to leave private respondent (and others who may find themselves in his position) without
any effective recourse for the unjust dismissal and for the breach of his contract of employment.
WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National Seamen Board
dated 31 May 1979 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 101503 September 15, 1993
PLANTERS PRODUCTS, INC., petitioner,
vs.
COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI
KAISHA,respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
BELLOSILLO, J.:
Does a charter-party1 between a shipowner and a charterer transform a common carrier into a private one as
to negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York,
U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974
aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK)
from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading
No. KP-1 signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner,
in Tokyo, Japan.3 Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the pre-
printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the
18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party
which reads:
16. . . . At loading port, notice of readiness to be accomplished by certificate from National
Cargo Bureau inspector or substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and
dried at the vessel's expense and the vessel to be presented clean for use in bulk to the
satisfaction of the inspector before daytime commences. (emphasis supplied)
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper,
the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with
steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage.5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the
use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which
were parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and
conditions of the charter-partly (which provided for an F.I.O.S. clause).6 The hatches remained open
throughout the duration of the discharge.7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to
the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the
trucks were made to pass through a weighing scale where they were individually weighed for the purpose of
ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining occasionally while the discharge was in
progress.8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening at
the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI
sheets were placed in-between and alongside the trucks to contain spillages of the ferilizer.9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and
18th).10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to
determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after
discharge. 11The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a
shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was
contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated 18
July 1974 prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about
23 M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the
resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods
shipped and the diminution in value of that portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment because,
according to them, what they received was just a request for shortlanded certificate and not a formal claim,
and that this "request" was denied by them because they "had nothing to do with the discharge of the
shipment." 14Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila.
The defendant carrier argued that the strict public policy governing common carriers does not apply to them
because they have become private carriers by reason of the provisions of the charter-party. The court a
quo however sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or
damaged when it ruled thus: 15
. . . Prescinding from the provision of the law that a common carrier is presumed negligent
in case of loss or damage of the goods it contracts to transport, all that a shipper has to do in
a suit to recover for loss or damage is to show receipt by the carrier of the goods and to
delivery by it of less than what it received. After that, the burden of proving that the loss or
damage was due to any of the causes which exempt him from liability is shipted to the carrier,
common or private he may be. Even if the provisions of the charter-party aforequoted are
deemed valid, and the defendants considered private carriers, it was still incumbent upon
them to prove that the shortage or contamination sustained by the cargo is attributable to the
fault or negligence on the part of the shipper or consignee in the loading, stowing, trimming
and discharge of the cargo. This they failed to do. By this omission, coupled with their failure
to destroy the presumption of negligence against them, the defendants are liable (emphasis
supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the
value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American
Steamship Agencies, Inc.,17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private
respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party.
Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do not
find application in the case at bar. Thus
. . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to
adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in its
complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden
of proving his cause of action, fails to show in a satisfactory manner the facts upon which he
bases his claim, the defendant is under no obligation to prove his exception or defense
(Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil.
202).
But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause
of action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was
under the impression that it did not have to establish defendant's negligence. Be that as it
may, contrary to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing its obligation . .
. 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the issue
raised therein is the validity of a stipulation in the charter-party delimiting the liability of the shipowner for
loss or damage to goods cause by want of due deligence on its part or that of its manager to make the vessel
seaworthy in all respects, and not whether the presumption of negligence provided under the Civil Code
applies only to common carriers and not to private carriers. 19 Petitioner further argues that since the
possession and control of the vessel remain with the shipowner, absent any stipulation to the contrary, such
shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the appellate court
in not applying the presumption of negligence against respondent carrier, and instead shifting the onus
probandi on the shipper to show want of due deligence on the part of the carrier, when he was not even at
hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason
of a charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had
exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it
fitting to first define important terms which are relevant to our discussion.
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship
or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of
affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to
carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel
is let to the charterer with a transfer to him of its entire command and possession and consequent control over
its navigation, including the master and the crew, who are his servants. Contract of affreightment may either
be time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter,
wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for the hire of vessel
only, either for a determinate period of time or for a single or consecutive voyage, the shipowner to supply the
ship's stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the
ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a
casual occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies
in the character of the business, such that if the undertaking is a single transaction, not a part of the general
business or occupation, although involving the carriage of goods for a fee, the person or corporation offering
such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business,
should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private
carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case
of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to
have acted negligently, and the burden of proving otherwise rests on them.26 On the contrary, no such
presumption applies to private carriers, for whosoever alleges damage to or deterioration of the goods carried
has the onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the
ship captain, its officers and compliment were under the employ of the shipowner and therefore continued to
be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew
and to the ship, with the duty of caring for his cargo when the charterer did not have any control of the means
in doing so. This is evident in the present case considering that the steering of the ship, the manning of the
decks, the determination of the course of the voyage and other technical incidents of maritime navigation were
all consigned to the officers and crew who were screened, chosen and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole
or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of
a time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering
the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra,
is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the
charter-party exempting the shipowners from liability for loss due to the negligence of its agent, and not the
effects of a special charter on common carriers. At any rate, the rule in the United States that a ship chartered
by a single shipper to carry special cargo is not a common carrier, 29 does not find application in our
jurisdiction, for we have observed that the growing concern for safety in the transportation of passengers and
/or carriage of goods by sea requires a more exacting interpretation of admiralty laws, more particularly, the
rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30
As a matter of principle, it is difficult to find a valid distinction between cases in which a
ship is used to convey the goods of one and of several persons. Where the ship herself is let
to a charterer, so that he takes over the charge and control of her, the case is different; the
shipowner is not then a carrier. But where her services only are let, the same grounds for
imposing a strict responsibility exist, whether he is employed by one or many. The master
and the crew are in each case his servants, the freighter in each case is usually without any
representative on board the ship; the same opportunities for fraud or collusion occur; and
the same difficulty in discovering the truth as to what has taken place arises . . .
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee
should first prove the fact of shipment and its consequent loss or damage while the same was in the
possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove
that he has exercised extraordinary diligence required by law or that the loss, damage or deterioration of the
cargo was due to fortuitous event, or some other circumstances inconsistent with its liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima
faciepresumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the
fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing
the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron
lids, then covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches
remained close and tightly sealed while the ship was in transit as the weight of the steel covers made it
impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of
spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum"
docked at its berthing place, representatives of the consignee boarded, and in the presence of a representative
of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches
and inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful
eyes of the shipmates who were overseeing the whole operation on rotation basis. 34
Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by
the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was
confirmed by respondent appellate court thus
. . . Be that as it may, contrary to the trial court's finding, the record of the instant case
discloses ample evidence showing that defendant carrier was not negligent in performing its
obligations. Particularly, the following testimonies of plaintiff-appellee's own witnesses
clearly show absence of negligence by the defendant carrier; that the hull of the vessel at the
time of the discharge of the cargo was sealed and nobody could open the same except in the
presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977,
p. 14); that the cover of the hatches was made of steel and it was overlaid with tarpaulins,
three layers of tarpaulins and therefore their contents were protected from the weather
(TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to be
broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis
supplied).
The period during which private respondent was to observe the degree of diligence required of it as a public
carrier began from the time the cargo was unconditionally placed in its charge after the vessel's holds were
duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination and its
hull was reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed
upon by the parties in the Addendum to the standard "GENCON" time charter-party which provided for an
F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by the
charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the
cargo resulting from improper stowage only when the stowing is done by stevedores employed by him, and Cruz, J., took no part.
therefore under his control and supervision, not when the same is done by the consignee or stevedores under Grio-Aquino, J., is on leave.
the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction
or deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the
containers. The Code of Commerce also provides that all losses and deterioration which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods, shall
be for the account and risk of the shipper, and that proof of these accidents is incumbent upon the
carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding causes
if it is proved, as against him, that they arose through his negligence or by reason of his having failed to take
the precautions which usage has established among careful persons. 38
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the
expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer,
described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide compounds
which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However, during
storage, nitrogen and ammonia do not normally evaporate even on a long voyage, provided that the
temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added that
in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during such operation
amounting to one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause
of these spillages is the clamped shell which does not seal very tightly. Also, the wind tends to blow away some
of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in water,
either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form still
remains potent and usable although no longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made
greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the
elements and the grimy condition of the various pieces of equipment used in transporting and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the
vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches were tightly
closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was
chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while the
same was being transported from the ship to the dump trucks and finally to the consignee's warehouse. This
may be gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised the unloading.
He explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an
approximation or estimate made by them after the fertilizer was discharged from the vessel and segregated
from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained
from time to time at the harbor area while the cargo was being discharged according to the supply officer of
PPI, who also testified that it was windy at the waterfront and along the shoreline where the dump trucks
passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with
it the risk of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was
the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has
sufficiently proved the inherent character of the goods which makes it highly vulnerable to deterioration; as
well as the inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was
adduced by the petitioner showing that the carrier was remise in the exercise of due diligence in order to
minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial
court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional
Trial Court, of Manila should be, as it is hereby DISMISSED.
Costs against petitioner.
SO ORDERED.
Davide, Jr. and Quiason, JJ., concur.
FIRST DIVISION
[G.R. No. 131166. September 30, 1999]
CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S.
GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO,
ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING
CORPORATION, TERESITA G. CAEZAL AND SOTERA E. CAEZAL, respondents.
DECISION
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel
and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of
Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV Doa Paz,
killing almost all the passengers and crew members of both ships, and thus resulting in one of the countrys
worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision [1]holding petitioner jointly liable
with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.s passenger ship
MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to
Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. [2] MT Vector is a
tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of
transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the
MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract
between them.[3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of Tacloban
headed for Manila with a complement of 59 crew members including the master and his officers, and
passengers totaling 1,493 as indicated in the Coast Guard Clearance. [4] The MV Doa Paz is a passenger and
cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/
Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of
Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doa Paz died, while the
two survivors from MT Vector claimed that they were sleeping at the time of the incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that
responded to distress calls.[5]Among those who perished were public school teacher Sebastian Caezal (47
years old) and his daughter Corazon Caezal (11 years old), both unmanifested passengers but proved to be on
board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found that the
MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping
Corporation, were at fault and responsible for its collision with MV Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and mother
respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for Damages Arising from
Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third
party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio
alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector
was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party complaint against
petitioner.The dispositive portion reads:
WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd party plaintiff
Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal, including loss of future
earnings of said Sebastian, moral and exemplary damages, attorneys fees, in the total amount of P
1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against the
3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG
Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of
Appeal modified the trial courts ruling and included petitioner Caltex as one of the those liable for
damages. Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby
MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal and Corazon
Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the total amount of ONE
HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the total amount of
THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P 50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third party
complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorneys
fees and costs which the latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co.
(being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being the charterer that
negligently caused the shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public
or private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the
one hand, or a charter party or similar contract on the other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or
other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a
particular voyage, in consideration of the payment of freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both
cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a
single or consecutive voyage, the ship owner to supply the ships store, pay for the wages of the master of the
crew, and defray the expenses for the maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages
caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as
owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free
from liability to third persons in respect of the ship.[13]
 Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one? We need to answer this
question in order to shed light on the responsibilities of the parties.
In this case, the charter party agreement did not convert the common carrier into a private carrier. The
parties entered into a voyage charter, which retains the character of the vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole
or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of
a time-charter or voyage charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering
the charter-party is concerned.Indubitably, a ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:[15]
Although a charter party may transform a common carrier into a private one, the same however is not true in a
contract of affreightment xxx
A common carrier is a person or corporation whose regular business is to carry passengers or property
for all persons who may choose to employ and to remunerate him.[16] MT Vector fits the definition of a
common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals,[17] we ruled:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers for passengers or goods or both, by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a
sideline). Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such services on a an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to
the general public, i.e., the general community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from
making such distinctions.
It appears to the Court that private respondent is properly characterized as a common carrier even though he
merely back-hauled goods for other merchants from Manila to Pangasinan, although such backhauling was
done on a periodic, occasional rather than regular or scheduled manner, and even though
respondents principal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that the fee frequently fell below commercial
freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to -
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel
involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. [18]
The provisions owed their conception to the nature of the business of common carriers. This business is
impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous.[19] For these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its
seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an unseaworthy
vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery
Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only
in bays and rivers when the subject collision occurred in the open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code,
which provide:
Article 20. - Every person who contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 2176. - Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which is expected of a
good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as commonly understood, is
conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe
that degree of care, precaution, and vigilance, which the circumstances justly demand, or the omission to do
something which ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for being
engaged in public service.[22] The Civil Code demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances of the persons, the time and the place. Hence,
considering the nature of the obligation between Caltex and MT Vector, the liability as found by the Court of
Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness,[23] shippers of goods, when transacting with common carriers, are not expected to
inquire into the vessels seaworthiness, genuineness of its licenses and compliance with all maritime laws. To
demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our
maritime laws insofar as the protection of the public in general is concerned. By the same token, we cannot
expect passengers to inquire every time they board a common carrier, whether the carrier possesses the
necessary papers or that all the carriers employees are qualified. Such a practice would be an absurdity in a
business where time is always of the essence. Considering the nature of transportation business, passengers
and shippers alike customarily presume that common carriers possess all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping
his cargoes.
A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could
legally transport cargo that time of the year.
 Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and costs the latter is
under VESSELS DOCUMENTS adjudged to pay plaintiffs-appellees in the case.
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7, 1987, No costs in this instance.
Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the SO ORDERED.
Certificate of Inspection No. 1290-85 during the hiring of MT Vector? Davide, Jr., C.J., (Chairman), Kapunan, and Ynares-Santiago, JJ., concur.
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid C.I. Puno, J., took no part due to close relation with a party.
which will expire on December 7, 1987 but on the last week of November, I called the attention of Mr.
Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they will renew the
same.
Q: What happened after that?
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were going to
send me a copy as soon as possible, sir.[24]
xxx xxx xxx
Q: What did you do with the C.I.?
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our long
business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates that the
documents are in order. xxx[25]
On cross examination -
Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection has
expired on December 7. Did it occur to you not to let the vessel sail on that day because of the very
approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were able to
secure a renewal of the Certificate of Inspection and that they will in time submit us a copy. [26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in the
coastwise license on December 7, 1987. What was your assurance for the record that this document
was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three years,
they were allowed to sail by the Coast Guard. That are some that make me believe that they in fact
were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was allowed, referring to
MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast Guard, it
means that it has Certificate of Inspection extended as assured to this witness by Restituto
Abalos. That in no case MV Vector will be allowed to sail if the Certificate of Inspection is, indeed, not
to be extended. That was his repeated explanation to the cross-examination. So, there is no need to
clarify the same in the re-direct examination.[27]
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a
higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even
the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal
basis to hold petitioner liable for damages.
As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we limit our ruling to
the liability of Caltex alone. However, we maintain the Court of Appeals ruling insofar as Vector is concerned .
WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of
Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable under the
third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is
adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court of Appeals insofar as it
orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Caezal and Corazon Caezal damages as set forth
therein. Third-party defendant-appellee Vector Shipping Corporation and Francisco Soriano are held liable to
Republic of the Philippines defendant's vessel, by the exercise of due precautions might have avoided the collision by a very simple
SUPREME COURT manuever. But it is sufficient answer to this contention to point out that the rule of liability in this jurisdiction
Manila for maritime accidents such as that now under consideration is clearly, definitely, and unequivocally laid down
EN BANC in the above-cited article 827 of the Code of Commerce; and under that rule, the evidence disclosing that both
G.R. No. L-8325 March 10, 1914 vessels were blameworthy, the owners of either can successfully maintain an action against the other for the
C. B. WILLIAMS, plaintiff-appellant, loss or injury of his vessel.
vs. In cases of a disaster arising from the mutual negligence of two parties, the party who has a last clear
TEODORO R. YANGCO, defendant-appellant. opportunity of avoiding the accident, notwithstanding the negligence of his opponent, is considered wholly
William A. Kincaid and Thomas L. Hartigan for plaintiff. responsible for it under the common-law rule of liability as applied in the courts of common law of the United
Haussermann, Cohn, & Fisher fro defendant. States. But this rule (which is not recognized in the courts of admiralty in the United States, wherein the loss is
CARSON, J.: divided in cases of mutual and concurring negligence, as also where the error of one vessel has exposed her to
The steamer Subic, owned by the defendant, collided with the lunch Euclid owned by the plaintiff, in the Bay of danger of collision which was consummated by he further rule, that where the previous application by the
Manila at an early hour on the morning of January 9, 1911, and the Euclid sank five minutes thereafter. This further rule, that where the previous act of negligence of one vessel has created a position of danger, the other
action was brought to recover the value of the Euclid. vessel is not necessarily liable for the mere failure to recognize the perilous situation; and it is only when in
The court below held from the evidence submitted that the Euclid was worth at a fair valuation P10,000; that fact it does discover it in time to avoid the casualty by the use of ordinary care, that it becomes liable for the
both vessels were responsible for the collision; and that the loss should be divided equally between the failure to make use of this last clear opportunity to avoid the accident. (See cases cited in Notes, 7 Cyc., pp. 311,
respective owners, P5,000 to be paid the plaintiff by the defendant, and P5,000 to be borne by the plaintiff 312, 313.) So, under the English rule which conforms very nearly to the common-law rule as applied in the
himself. From this judgment both defendant and plaintiff appealed. American courts, it has been held that the fault of the first vessel in failing to exhibit proper lights or to take the
After a careful review of all the evidence of record we are all agreed with the trial judge in his holding that the proper side of the channel will relieve from liability one who negligently runs into such vessels before he sees
responsible officers on both vessels were negligent in the performance of their duties at the time when the it; although it will not be a defense to one who, having timely warning of the danger of collision, fails to use
accident occurred, and that both vessels were to blame for the collision. We do not deem it necessary to review proper care to avoid it. (Pollock on Torts, 374.) In the case at bar, the most that can be said in support of
the conflicting testimony of the witnesses called by both parties, the trial also having inserted in his opinion a plaintiff's contention is that there was negligence on the part of the officers on defendant's vessel in failing to
careful and critical summary and analysis of the testimony submitted to him, which, to our minds, fully and recognize the perilous situation created by the negligence of those in charge of plaintiff's launch, and that had
satisfactorily disposes of the evidence are set forth in the following language (translated): they recognized it in time, they might have avoided the accident. But since it does not appear from the
In view of the negligence of which the patron Millonario (of defendant's vessel) has been guilty as evidence that they did, in fact, discover the perilous situation of the launch in time to avoid the accident by the
well as that imputable to the patron of the launch Euclid, both contributed in a decided manner and exercise of ordinary care, it is very clear that under the above set out limitation to the rule, the plaintiff cannot
beyond all doubt to the occurrence of the accident and the consequent damages resulting therefrom escape the legal consequences of the contributory negligence of his launch, even were we to hold that the
in the loss of the launch Euclid. doctrine is applicable in the jurisdiction, upon which point we expressly reserve our decision at this time.
With a little diligence which either of the two patrons might have practiced under the circumstances The judgment of the court below in favor of the plaintiff and against the defendant should be reserved, and the
existing at the time of the collision, if both had not been so distracted and so negligent in the plaintiff's complaint should be dismissed without day, without costs to either party in this instance. So
fulfillment of their respective duties, the disaster could have been easily avoided, since the sea was ordered.
free of obstacles and the night one which permitted the patron Millonario to distinguish the hull of Arellano, C.J., Moreland, Trent and Araullo, JJ., concur.
the launch twenty minutes before the latter entered upon his path . . .
There is proven, therefore, the negligence of which the patron of the Euclid has been guilty.
If the negligence by which the patron of the launch Euclid has contributed to the cause of the accident
and to the resulting damages is patent, none the less so is the negligence of the patron of the
steamer Subic, Hilarion Millonario by name, as may be seen from his own testimony which is here
copied for the better appreciation thereof.
It will be seen that the trial judge was of opinion that the vessels were jointly liable for the loss resulting from
the sinking of the launch. But actions for damages resulting from maritime collisions are governed in this
jurisdiction by the provisions of section 3, title 4, Book III of the Code of Commerce, and among these
provisions we find the following:
ART. 827. If both vessels may be blamed for the collision, each one shall be liable for its own
damages, and both shall be jointly responsible for the loss and damages suffered by their cargoes.
In disposing of this case the trial judge apparently had in mind that portion of the section which treats of the
joint liability of both vessels for loss or damages suffered by their cargoes. In the case at bar, however, the only
loss incurred was that of the launch Euclid itself, which went to the bottom soon after the collision. Manifestly,
under the plain terms of the statute, since the evidence of record clearly discloses, as found by the trail judge,
that "both vessels may be blamed for the collision," each one must be held may be blamed for it own damages,
and the owner of neither one can recover from the other in an action for damages to his vessel.
Counsel for the plaintiff, basing his contention upon the theory of the facts as contended for by him, insisted
that under he doctrine of "the last clear chance," the defendant should be held liable because, as he insists,
even if the officers on board the plaintiff's launch were negligence in failing to exhibit proper lights and in
failing to take the proper steps to keep out of the path of the defendant's vessel, nevertheless the officers on
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-56294 May 20, 1991
SMITH BELL AND COMPANY (PHILIPPINES), INC. and TOKYO MARINE AND FIRE INSURANCE CO.,
INC.,petitioners,
vs.
THE COURT OF APPEALS and CARLOS A. GO THONG AND CO., respondents.
Bito, Misa & Lozada for petitioners.
Rodriguez, Relova & Associates for private respondent.
FELICIANO, J.:
In the early morning of 3 May 1970at exactly 0350 hours, on the approaches to the port of Manila near
Caballo Island, a collision took place between the M/V "Don Carlos," an inter-island vessel owned and operated
by private respondent Carlos A. Go Thong and Company ("Go Thong"), and the M/S "Yotai Maru," a merchant
vessel of Japanese registry. The "Don Carlos" was then sailing south bound leaving the port of Manila for Cebu,
while the "Yotai Maru" was approaching the port of Manila, coming in from Kobe, Japan. The bow of the "Don
Carlos" rammed the portside (left side) of the "Yotai Maru" inflicting a three (3) cm. gaping hole on her
portside near Hatch No. 3, through which seawater rushed in and flooded that hatch and her bottom tanks,
damaging all the cargo stowed therein.
The consignees of the damaged cargo got paid by their insurance companies. The insurance companies in turn,
having been subrogated to the interests of the consignees of the damaged cargo, commenced actions against
private respondent Go Thong for damages sustained by the various shipments in the then Court of First
Instance of Manila.
Two (2) cases were filed in the Court of First Instance of Manila. The first case, Civil Case No. 82567, was
commenced on 13 March 1971 by petitioner Smith Bell and Company (Philippines), Inc. and Sumitomo Marine
and Fire Insurance Company Ltd., against private respondent Go Thong, in Branch 3, which was presided over
by Judge Bernardo P. Fernandez. The second case, Civil Case No. 82556, was filed on 15 March 1971 by
petitioners Smith Bell and Company (Philippines), Inc. and Tokyo Marine and Fire Insurance Company, Inc.
against private respondent Go Thong in Branch 4, which was presided over by then Judge, later Associate
Justice of this Court, Serafin R. Cuevas.
Civil Cases Nos. 82567 (Judge Fernandez) and 82556 (Judge Cuevas) were tried under the same issues and
evidence relating to the collision between the "Don Carlos" and the "Yotai Maru" the parties in both cases
having agreed that the evidence on the collision presented in one case would be simply adopted in the other. In
both cases, the Manila Court of First Instance held that the officers and crew of the "Don Carlos" had been
negligent that such negligence was the proximate cause of the collision and accordingly held respondent Go
Thong liable for damages to the plaintiff insurance companies. Judge Fernandez awarded the insurance
companies P19,889.79 with legal interest plus P3,000.00 as attorney's fees; while Judge Cuevas awarded the
plaintiff insurance companies on two (2) claims US $ 68,640.00 or its equivalent in Philippine currency plus
attorney's fees of P30,000.00, and P19,163.02 plus P5,000.00 as attorney's fees, respectively.
The decision of Judge Fernandez in Civil Case No. 82567 was appealed by respondent Go Thong to the Court of
Appeals, and the appeal was there docketed as C.A.-G.R. No. 61320-R. The decision of Judge Cuevas in Civil
Case No. 82556 was also appealed by Go Thong to the Court of Appeals, the appeal being docketed as C.A.-G.R.
No. 61206-R. Substantially identical assignments of errors were made by Go Thong in the two (2) appealed
cases before the Court of Appeals.
In C.A.-G.R. No. 61320-R, the Court of Appeals through Reyes, L.B., J., rendered a Decision on 8 August 1978
affirming the Decision of Judge Fernandez. Private respondent Go Thong moved for reconsideration, without
success. Go Thong then went to the Supreme Court on Petition for Review, the Petition being docketed as G.R.
No. L-48839 ("Carlos A. Go Thong and Company v. Smith Bell and Company [Philippines], Inc., et al."). In its
Resolution dated 6 December 1978, this Court, having considered "the allegations, issues and arguments
adduced in the Petition for Review on Certiorari, of the Decision of the Court of Appeals as well as respondent's
comment", denied the Petition for lack of merit. Go Thong filed a Motion for Reconsideration; the Motion was
denied by this Court on 24 January 1979.
In the other (Cuevas) case, C.A.-G.R. No. 61206-R, the Court of Appeals, on 26 November 1980 (or almost two
[2] years after the Decision of Reyes, L.B., J., in C.A.-G.R. No. 61320-R, had been affirmed by the Supreme Court
on Petition for Review) through Sison, P.V., J., reversed the Cuevas Decision and held the officers of the "Yotai
Maru" at fault in the collision with the "Don Carlos," and dismissed the insurance companies' complaint. Herein
petitioners asked for reconsideration, to no avail.
The insurance companies are now before us on Petition for Review on Certiorari, assailing the Decision of
Sison, P.V., J., in C.A.-G.R. No. 61206-R. Petitioners' principal contentions are:
a. that the Sison Decision had disregarded the rule of res judicata;
b. that Sison P.V., J., was in serious and reversible error in accepting Go Thong's defense that the
question of fault on the part of the "Yotai Maru" had been settled by the compromise agreement
between the owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos;" and
c. that Sison, P. V. J., was in serious and reversible error in holding that the "Yotai Maru" had been
negligent and at fault in the collision with the "Don Carlos."
I
The first contention of petitioners is that Sison, P. V. J. in rendering his questioned Decision, failed to apply the
rule of res judicata. Petitioners maintain that the Resolution of the Supreme Court dated 6 December 1978 in
G.R. No. 48839 which dismissed Go Thong's Petition for Review of the Decision of Reyes, L.B., J., in C.A.-G.R. No.
61320-R, had effectively settled the question of liability on the part of the "Don Carlos." Under the doctrine
of res judicata, petitioners contend, Sison, P. V. J. should have followed the Reyes, L.B., J. Decision since the
latter had been affirmed by the Supreme Court and had become final and executory long before the Sison
Decision was rendered.
Private respondent Go Thong, upon the other hand, argues that the Supreme Court, in rendering its minute
Resolution in G.R. No. L- 48839, had merely dismissed Go Thong's Petition for Review of the Reyes, L.B., J.
Decision for lack of merit but had not affirmed in toto that Decision. Private respondent, in other words,
purports to distinguish between denial of a Petition for Review for lack of merit and affirmance of the Court of
Appeals' Decision. Thus, Go Thong concludes, this Court did not hold that the "Don Carlos" had been negligent
in the collision.
Private respondent's argument must be rejected. That this Court denied Go Thong's Petition for Review in a
minute Resolution did not in any way diminish the legal significance of the denial so decreed by this Court. The
Supreme Court is not compelled to adopt a definite and stringent rule on how its judgment shall be framed. 1 It
has long been settled that this Court has discretion to decide whether a "minute resolution" should be used in
lieu of a full-blown decision in any particular case and that a minute Resolution of dismissal of a Petition for
Review oncertiorari constitutes an adjudication on the merits of the controversy or subject matter of the
Petition.2 It has been stressed by the Court that the grant of due course to a Petition for Review is "not a matter
of right, but of sound judicial discretion; and so there is no need to fully explain the Court's denial. For one
thing, the facts and law are already mentioned in the Court of Appeals' opinion."3 A minute Resolution denying
a Petition for Review of a Decision of the Court of Appeals can only mean that the Supreme Court agrees with
or adopts the findings and conclusions of the Court of Appeals, in other words, that the Decision sought to be
reviewed and set aside is correct.4
Private respondent Go Thong argues also that the rule of res judicata cannot be invoked in the instant case
whether in respect of the Decision of Reyes, L.B., J. or in respect of the Resolution of the Supreme Court in G.R.
No. L-48839, for the reason that there was no identity of parties and no identity of cause of action between
C.A.-G.R. No. 61206-R and C.A.-G.R. No. 61320-R.
The parties in C.A.-G.R. No. 61320-R Where the decision of Judge Fernandez was affirmed, involved Smith Bell
and Company (Philippines), Inc., and Sumitomo Marine and Fire Insurance Co., Ltd. while the petitioners in the
instant case (plaintiffs below) are Smith Bell and Co. (Philippines), Inc. and Tokyo Marine and Fire Insurance
Co., Ltd. In other words, there was a common petitioner in the two (2) cases, although the co-petitioner in one
was an insurance company different from the insurance company co-petitioner in the other case. It should be
noted, moreover, that the co-petitioner in both cases was an insurance company arid that both petitioners in
the two (2) cases represented the same interest, i.e., the cargo owner's interest as against the hull interest or
the interest of the shipowner. More importantly, both cases had been brought against the same defendant,
private respondent Go Thong, the owner of the vessel "Don Carlos." In sum, C.A.-G.R. No. 61320R and C.A-G.R.
No. 61206-R exhibited substantial identity of parties.
It is conceded by petitioners that the subject matters of the two (2) suits were not identical, in the sense that
the cargo which had been damaged in the one case and for which indemnity was sought, was not the very same
cargo which had been damaged in the other case indemnity for which was also sought. The cause of action
was, however, the same in the two (2) cases, i.e., the same right of the cargo owners to the safety and integrity
of their cargo had been violated by the same casualty, the ramming of the "Yotai Maru" by the "Don Carlos."
The judgments in both cases were final judgments on the merits rendered by the two (2) divisions of the Court
of Appeals and by the Supreme Court, the jurisdiction of which has not been questioned.
Under the circumstances, we believe that the absence of identity of subject matter, there being substantial
identity of parties and identity of cause of action, will not preclude the application of res judicata.5
In Tingson v. Court of Appeals,6 the Court distinguished one from the other the two (2) concepts embraced in
the principle of res judicata, i.e., "bar by former judgment" and "conclusiveness of judgment:"
There is no question that where as between the first case Where the judgment is rendered and the
second case where such judgment is invoked, there is identity of parties, subject-matter and cause of
action, the judgment on the merits in the first case constitutes an absolute bar to the subsequent
action not only as to every matter which was offered and received to sustain or defeat the claim or
demand, but also as to any other admissible matter which might have been offered for that purpose
and to all matters that could have been adjudged in that case. This is designated as "bar by former
judgment."
But where the second action between the same parties is upon a different claim or demand, the
judgment in the prior action operates as an estoppel only as to those matters in issue or points
controverted, upon the determination of which the finding or judgment was rendered. In fine, the
previous judgment is conclusive in the second case, only as those matters actually and directly
controverted and determined and not as to matters merely involved therein. This is the rule
on 'conclusiveness of judgment' embodied in subdivision (c) of Section 49 of Rule 39 of the Revised
Rules of' Court.7 (Citations omitted) (Emphases supplied)
In Lopez v. Reyes,8 the Court elaborated further the distinction between bar by former judgment which bars the
prosecution of a second action upon the same claim, demand or cause of action, and conclusiveness of
judgment which bars the relitigation of particular facts or issues in another litigation between the same parties
on a different claim or cause of action:
The doctrine of res judicata has two aspects. The first is the effect of a judgment as a bar to the
prosecution of a second action upon the same claim, demand or cause of action. The second aspect is
that it precludes the relitigation of a particular fact or issues in another action between the same
parties on a different claim or cause of action.
The general rule precluding the relitigation of material facts or questions which were in issue and
adjudicated in former action are commonly applied to all matters essentially connected with the
subject matter of the litigation. Thus, it extends to questions "necessarily involved in an issue, and
necessarily adjudicated, or necessarily implied in the final judgment, although no specific finding may
have been made in reference thereto, and although such matters were directly referred to in the
pleadings and were not actually or formally presented. Under this rule, if the record of the former trial
shows that the judgment could not have been rendered without deciding the particular matter it will be
considered as having settled that matter as to all future actions between the parties, and if a judgment
necessarily presupposes certain premises, they are as conclusive as the judgment itself. Reasons for the
rule are that a judgment is an adjudication on all the matters which are essential to support it, and
that every proposition assumed or decided by the court leading up to the final conclusion and upon
which such conclusion is based is as effectually passed upon as the ultimate question which is finally
solved.9 (Citations omitted) (Emphases supplied)
In the case at bar, the issue of which vessel ("Don Carlos" or "Yotai Maru") had been negligent, or so negligent
as to have proximately caused the collision between them, was an issue that was actually, directly and
expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his
Decision and held the "Don Carlos" to have been negligent rather than the "Yotai Maru" and, as already noted,
that Decision was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1978. The
Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which
is assailed in the case at bar, was promulgated. Applying the rule of conclusiveness of judgment, the question
of which vessel had been negligent in the collision between the two (2) vessels, had long been settled by this
Court and could no longer be relitigated in C.A.-G.R. No. 61206- R. Private respondent Go Thong was certainly
bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and
reversible error When it disregarded the Decision of this Court affirming the Reyes Decision.10
Private respondent Go Thong also argues that a compromise agreement entered into between Sanyo Shipping
Company as owner of the "Yotai Maru" and Go Thong as owner of the "Don Carlos," under which the former
paid P268,000.00 to the latter, effectively settled that the "Yotai Maru" had been at fault. This argument is
wanting in both factual basis and legal substance. True it is that by virtue of the compromise agreement, the
owner of the "Yotai Maru" paid a sum of money to the owner of the "Don Carlos." Nowhere, however, in the
compromise agreement did the owner of the "Yotai Maru " admit or concede that the "Yotai Maru" had been at
fault in the collision. The familiar rule is that "an offer of compromise is not an admission that anything is due,
and is not admissible in evidence against the person making the offer."11 A compromise is an agreement
between two (2) or more persons who, in order to forestall or put an end to a law suit, adjust their differences
by mutual consent, an adjustment which everyone of them prefers to the hope of gaining more, balanced by
the danger of losing more.12An offer to compromise does not, in legal contemplation, involve an admission on
the part of a defendant that he is legally liable, nor on the part of a plaintiff that his claim or demand is
groundless or even doubtful, since the compromise is arrived at precisely with a view to avoiding further
controversy and saving the expenses of litigation.13 It is of the very nature of an offer of compromise that it is
made tentatively, hypothetically and in contemplation of mutual concessions.14 The above rule on
compromises is anchored on public policy of the most insistent and basic kind; that the incidence of litigation
should be reduced and its duration shortened to the maximum extent feasible.
The collision between the "Yotai Maru" and the "Don Carlos" spawned not only sets of litigations but also
administrative proceedings before the Board of Marine Inquiry ("BMI"). The collision was the subject matter of
an investigation by the BMI in BMI Case No. 228. On 12 July 1971, the BMI through Commodore Leovegildo L.
Gantioki, found both vessels to have been negligent in the collision.
Both parties moved for reconsideration of the BMI's decision. The Motions for Reconsideration were resolved
by the Philippine Coast Guard ("PCG") nine (9) years later, in an order dated 19 May 1980 issued by PCG
Commandant, Commodore Simeon M. Alejandro. The dispositive portion of the PCG decision read as follows:
Premises considered, the Decision dated July 12, 1971 is hereby reconsidered and amended
absolving the officers of "YOTAI MARU" from responsibility for the collision. This Headquarters finds
no reason to modify the penalties imposed upon the officers of Don Carlos. (Annex "C", Reply,
September 5, 1981).15
Go Thong filed a second Motion for Reconsideration; this was denied by the PCG in an order dated September
1980.
Go Thong sought to appeal to the then Ministry of National Defense from the orders of the PCG by filing with
the PCG on 6 January 1981 a motion for a 30-day extension from 7 January 1981 within which to submit its
record on appeal. On 4 February 1981, Go Thong filed a second urgent motion for another extension of thirty
(30) days from 7 February 1981. On 12 March 1981, Go Thong filed a motion for a final extension of time and
filed its record on appeal on 17 March 1981. The PCG noted that Go Thong's record on appeal was filed late,
that is, seven (7) days after the last extension granted by the PCG had expired. Nevertheless, on 1 July 1981
(after the Petition for Review on Certiorari in the case at bar had been filed with this Court), the Ministry of
Defense rendered a decision reversing and setting aside the 19 May 1980 decision of the PCG
The owners of the "Yotai Maru" then filed with the Office of the President a Motion for Reconsideration of the
Defense Ministry's decision. The Office of the President rendered a decision dated 17 April 1986 denying the
Motion for Reconsideration. The decision of the Office of the President correctly recognized that Go Thong had
failed to appeal in a seasonable manner:
MV "DON CARLOS" filed her Notice of Appeal on January 5, 1981. However, the records also show
beyond peradventure of doubt that the PCG Commandant's decision of May 19, 1980, had already
become final and executory When MV "DON CARLOS" filed her Record on Appeal on March 17, 1981, and
When the motion for third extension was filed after the expiry date.
Under Paragraphs (c), (d), (e) and (f), Chapter XVI, of the Philippine Merchant Marine Rules and
Regulations, decisions of the PCG Commandant shall be final unless, within thirty (30) days after
receipt of a copy thereof, an appeal to the Minister of National Defense is filed and perfected by the
 filing of a notice of appeal and a record on appeal. Such administrative regulation has the force and
effect of law, and the failure of MV "DON CARLOS" to comply therewith rendered the PCG
Commandant's decision on May 19, 1980, as final and executory, (Antique Sawmills, Inc. vs. Zayco, 17
SCRA 316; Deslata vs. Executive Secretary, 19 SCRA 487; Macailing vs. Andrada, 31 SCRA 126.)
(Annex "A", Go Thong's Manifestation and Motion for Early Resolution, November 24,
1986).16 (Emphases supplied)
Nonetheless, acting under the misapprehension that certain "supervening" events had taken place, the Office
of the President held that the Minister of National Defense could validly modify or alter the PCG Commandant's
decision:
However, the records likewise show that, on November 26, 1980, the Court of Appeals rendered a
decision in CA-G.R. No. 61206-R (Smith Bell & Co., Inc., et al. vs. Carlos A. Go Thong & Co.) holding that
the proximate cause of the collision between MV "DON CARLOS" AND MS "YOTAI MARU" was the
negligence, failure and error of judgment of the officers of MS "YOTAI MARU". Earlier, or on February
27, 1976, the Court of First Instance of Cebu rendered a decision in Civil Case No. R-11973 (Carlos A.
Go Thong vs. San-yo Marine Co.) holding that MS "YOTAI MARU" was solely responsible for the
collision, which decision was upheld by the Court of Appeals.
The foregoing judicial pronouncements rendered after the finality of the PCG Commandant's decision of
May 19, 1980, were supervening causes or reasons that rendered the PCG Commandant's decision as no
longer enforceable and entitled MV "DON CARLOS" to request the Minister of National Defense to modify
or alter the questioned decision to harmonize the same with justice and tile facts. (De la Costa vs.
Cleofas, 67 Phil. 686; City of Bututan vs. Ortiz, 3 SCRA 659; Candelario vs. Canizares, 4 SCRA 738;
Abellana vs. Dosdos, 13 SCRA 244). Under such precise circumstances, the Minister of National Defense
may validly modify or alter the PCG commandant's decision. (Sec. 37, Act 4007; Secs. 79(c) and 550,
Revised Administrative Code; Province of Pangasinan vs. Secretary of Public Works and
Communications, 30 SCRA 134; Estrelia vs. Orendain, 37 SCRA 640).17 (Emphasis supplied)
The multiple misapprehensions under which the Office of the President labored, were the following:
It took account of the Decision of Sison, P.V., J. in C.A.-G.R. No. 61206-R, the very decision that is the subject of
review in the Petition at bar and therefore not final. At the same time, the Office of the President either ignored
or was unaware of the Reyes, L.B., J., Decision in C.A.-G.R. No 61320-R finding the "Don Carlos" solely liable for
the collision, and of the fact that that Decision had been affirmed by the Supreme Court and had long ago
become final and executory. A third misapprehension of the Office of the President related to a decision in a
Cebu Court of First Instance litigation which had been settled by the compromise agreement between the
Sanyo Marine Company and Go Thong. The Office of the President mistakenly believed that the Cebu Court of
First Instance had rendered a decision holding the "Yotai Maru" solely responsible for the collision, When in
truth the Cebu court had rendered a judgment of dismissal on the basis of the compromise agreement. The
Cebu decision was not, of course, appealed to the Court of Appeals.
It thus appears that the decision of the Office of the President upholding the belated reversal by the Ministry of
National Defense of the PCG'S decision holding the "Don Carlos" solely liable for the collision, is so deeply
flawed as not to warrant any further examination. Upon the other hand, the basic decision of the PCG holding
the "Don Carlos" solely negligent in the collision remains in effect.
II
In their Petition for Review, petitioners assail the finding and conclusion of the Sison Decision, that the "Yotai
Maru" was negligent and at fault in the collision, rather than the "Don Carlos." In view of the conclusions
reached in Part I above, it may not be strictly necessary to deal with the issue of the correctness of the Sison
Decision in this respect. The Court considers, nonetheless, that in view of the conflicting conclusions reached
by Reyes, L.B.,J., on the one hand, and Sison, P.V., J., on the other, and since in affirming the Reyes Decision, the
Court did not engage in a detailed written examination of the question of which vessel had been negligent, and
in view of the importance of the issues of admiralty law involved, the Court should undertake a careful review
of the record of the case at bar and discuss those issues in extenso.
The decision of Judge Cuevas in Civil Case No. 82556 is marked by careful analysis of the evidence concerning
the collision. It is worth underscoring that the findings of fact of Judge Fernandez in Civil Case No. 82567
(which was affirmed by the Court of Appeals in the Reyes Decision and by this Court in G.R. No. L-48839) are
just about identical with the findings of Judge Cuevas. Examining the facts as found by Judge Cuevas, the Court
believes that there are three (3) principal factors which are constitutive of negligence on the part of the "Don
Carlos," which negligence was the proximate cause of the collision.
The first of these factors was the failure of the "Don Carlos" to comply with the requirements of Rule 18 (a) of
the International Rules of the Road ("Rules")," which provides as follows
(a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve risk of
collision, each shall alter her course to starboard, so that each may pass on the port side of the other.
This Rule only applies to cases where vessels are meeting end on or nearly end on, in such a manner
as to involve risk of collision, and does not apply to two vessels which must, if both keep on their
respective course, pass clear of each other. The only cases to which it does apply are when each of
two vessels is end on, or nearly end on, to the other; in other words, to cases in which, by day, each
vessel sees the masts of the other in a line or nearly in a line with her own; and by night to cases in
which each vessel is in such a position as to see both the sidelights of the other. It does not apply, by
day, to cases in which a vessel sees another ahead crossing her own course; or, by night, to cases
where the red light of one vessel is opposed to the red light of the other or where the green light of
one vessel is opposed to the green light of the other or where a red light without a green light or a
green light without a red light is seen ahead, or Where both green and red lights are seen anywhere
but ahead. (Emphasis supplied)
The evidence on this factor was summarized by Judge Cuevas in the following manner:
Plaintiff's and defendant's evidence seem to agree that each vessel made a visual sighting of each
other ten minute before the collision which occurred at 0350. German's version of the incident that
followed, was that "Don Carlos" was proceeding directly to [a] meeting [on an] "end-on or nearly
end-on situation" (Exh. S, page 8). He also testified that "Yotai Maru's' headlights were "nearly in line
at 0340 A.M." (t.s.n., June 6, 1974) clearly indicating that both vessels were sailing on exactly opposite
paths (t.s.n. June 6, 1974, page 56). Rule 18 (a) of the International Rules of the Road provides as
follows:
xxx xxx xxx
And yet German altered "Don Carlos" course by five degrees to the left at 0343 hours instead of to the right (t.s.n.
June 6, 1974, pages 4445) which maneuver was the error that caused the collision in question. Why German did so
is likewise explained by the evidence on record. "Don Carlos" was overtaking another vessel, the "Don
Francisco", and was then at the starboard (right side) of the aforesaid vessel at 3:40 a.m. It was in the process of
overtaking "Don Francisco" that "Don Carlos' was finally brought into a situation where he was meeting end-on
or nearly end-on "Yotai Maru, thus involving risk of collision. Hence, German in his testimony before the Board
of Marine inquiry stated:
Atty. Chung:
You said in answer to the cross-examination that you took a change of course to the left. Why did you
not take a course to the right instead?
German:
I did not take any course to the right because the other vessel was in my mind at the starboard side
following me. Besides, I don't want to get risk of the Caballo Island (Exh. 2, pages 209 and
210).19(Emphasis supplied)
For her part, the "Yotai Maru" did comply with its obligations under Rule 18 (a). As the "Yotai Maru" found
herself on an "end-on" or a "nearly end-on" situation vis-a-vis the "Don Carlos, " and as the distance between
them was rapidly shrinking, the "Yotai Maru" turned starboard (to its right) and at the same time gave the
required signal consisting of one short horn blast. The "Don Carlos" turned to portside (to its left), instead of
turning to starboard as demanded by Rule 18 (a). The "Don Carlos" also violated Rule 28 (c) for it failed to give
the required signal of two (2) short horn blasts meaning "I am altering my course to port." When the "Yotai
Maru" saw that the "Don Carlos" was turning to port, the master of the "Yotai Maru" ordered the vessel turned
"hard starboard" at 3:45 a.m. and stopped her engines; at about 3:46 a.m. the "Yotai Maru" went "full astern
engine."20 The collision occurred at exactly 3:50 a.m.
The second circumstance constitutive of negligence on the part of the "Don Carlos" was its failure to have on
board that night a "proper look-out" as required by Rule I (B) Under Rule 29 of the same set of Rules, all
consequences arising from the failure of the "Don Carlos" to keep a "proper look-out" must be borne by the
"Don Carlos." Judge Cuevas' summary of the evidence said:
 The evidence on record likewise discloses very convincingly that "Don Carlos" did not have "look-
out" whose sole and only duty is only to act as Such. . . .21
A "proper look-out" is one who has been trained as such and who is given no other duty save to act as a look-
out and who is stationed where he can see and hear best and maintain good communication with the officer in
charge of the vessel, and who must, of course, be vigilant. Judge Cuevas wrote:
The "look-out" should have no other duty to perform. (Chamberlain v. Ward, 21, N.O.W. 62, U.S. 548,
571). He has only one duty, that which its name impliesto keep "look-out". So a deckhand who has
other duties, is not a proper "look-out" (Brooklyn Perry Co. v. U.S., 122, Fed. 696). The navigating
officer is not a sufficient "look-out" (Larcen B. Myrtle, 44 Fed. 779)Griffin on Collision, pages 277-
278). Neither the captain nor the [helmsman] in the pilothouse can be considered to be a "look-
out" within the meaning of the maritime law. Nor should he be stationed in the bridge. He should be as
near as practicable to the surface of the water so as to be able to see low-lying lights (Griffin on
Collision, page 273).
On the strength of the foregoing authorities, which do not appear to be disputed even by the
defendant, it is hardly probable that neither German or Leo Enriquez may qualify as "look-out" in the
real sense of the word.22 (Emphasis supplied)
In the case at bar, the failure of the "Don Carlos" to recognize in a timely manner the risk of collision with the
"Yotai Maru" coming in from the opposite direction, was at least in part due to the failure of the "Don Carlos" to
maintain a proper look-out.
The third factor constitutive of negligence on the part of the "Don Carlos" relates to the fact that Second Mate
Benito German was, immediately before and during the collision, in command of the "Don Carlos." Judge
Cuevas summed up the evidence on this point in the following manner:
The evidence on record clearly discloses that "Don Carlos" was, at the time of the collision and
immediately prior thereto, under the command of Benito German, a second mate although its captain,
Captain Rivera, was very much in the said vessel at the time. The defendant's evidence appears bereft of
any explanation as to why second mate German was at the helm of the aforesaid vessel when Captain
Rivera did not appear to be under any disability at the time. In this connection, Article [633] of the
Code of Commerce provides:
Art. [633] The second mate shall take command of the vessel in case of the inability or
disqualification of the captain and sailing mate, assuming, in such case, their powers and
liability.
The fact that second mate German was allowed to be in command of "Don Carlos" and not the chief or
the sailing mate in the absence of Captain Rivera, gives rise to no other conclusion except that said
vessel [had] no chief mate. Otherwise, the defense evidence should have at least explained why it was
German, only a second mate, who was at the helm of the vessel "Don Carlos" at the time of the fatal
collision.
But that is not all. Worst still, aside from German's being only a second mate, is his apparent lack of
sufficient knowledge of the basic and generally established rules of navigation. For instance, he
appeared unaware of the necessity of employing a "look- out" (t.s.n. June 6, 1974, page 27) which is
manifest even in his testimony before the Board of Marine Inquiry on the same subject (Exh. 2, page
209). There is, therefore, every reasonable ground to believe that his inability to grasp actual situation
and the implication brought about by inadequacy of experience and technical know-how was mainly
responsible and decidedly accounted for the collision of the vessels involved in this case.. . .23 (Emphasis
supplied)
Second Mate German simply did not have the level of experience, judgment and skill essential for recognizing
and coping with the risk of collision as it presented itself that early morning when the "Don Carlos," running at
maximum speed and having just overtaken the "Don Francisco" then approximately one mile behind to the
starboard side of the "Don Carlos," found itself head-on or nearly head on vis-a-vis the "Yotai Maru. " It is
essential to point out that this situation was created by the "Don Carlos" itself.
The Court of Appeals in C.A.-G.R. No. 61206-R did not make any findings of fact which contradicted the findings
of fact made by Judge Cuevas. What Sison, P.V., J. actually did was to disregard all the facts found by Judge
Cuevas, and discussed above and, astonishingly, found a duty on the "Yotai Maru" alone to avoid collision with
and to give way to the "Don Carlos ". Sison, P.V., J., wrote:
At a distance of eight (8) miles and with ten (10) minutes before the impact, [Katoh] and
Chonabayashi had ample time to adopt effective precautionary measures to steer away from the
Philippine vessel, particularly because both [Katoh] and Chonabayashi also deposed that at the time
they had first eyesight of the "Don Carlos" there was still "no danger at all" of a
collision.1wphi1 Having sighted the "Don Carlos" at a comparatively safe distance"no danger at all"
of a collisionthe Japanese ship should have observed with the highest diligence the course and
movements of the Philippine interisland vessel as to enable the former to adopt such precautions as will
necessarily present a collision, or give way, and in case of a collision, the former is prima facie at fault.
In G. Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632, the Supreme Court held:
Nautical rules require that where a steamship and sailing vessel are approaching each other
from opposite directions, or on intersecting lines, the steamship, from the moment the
sailing vessel is seen, shall watch with the highest diligence her course and movements so as
to enable it to adopt such timely means of precaution as will necessarily prevent the two
boats from coming in contact.' (Underscoring in the original)
At 3:44 p.m., or 4 minutes after first sighting the "Don Carlos", or 6 minutes before contact time,
Chonabayashi revealed that the "Yotai Maru" gave a one-blast whistle to inform the Philippine vessel
that the Japanese ship was turning to starboard or to the right and that there was no blast or a proper
signal from the "Don Carlos" (pp. 67-68. Deposition of Chonabayashi, List of Exhibits). The absence of
a reply signal from the "Don Carlos" placed the "Yotai Maru" in a situation of doubt as to the course
the "Don Carlos" would take. Such being the case, it was the duty of the Japanese officers "to stop,
reverse or come to a standstill until the course of the "Don Carlos" has been determined and the risk of a
collision removed(The Sabine, 21 F (2d) 121, 124, cited in Standard Vacuum, etc. vs. Cebu
Stevedoring, etc., 5 C.A.R. 2d 853, 861-862).. . . .24 (Emphasis supplied)
The Court is unable to agree with the view thus taken by Sison, P.V., J. By imposing an exclusive obligation
uponone of the vessels, the "Yotai Maru, " to avoid the collision, the Court of Appeals not only chose to overlook
all the above facts constitutive of negligence on the part of the "Don Carlos;" it also in effect used the very
negligence on the part of the "Don Carlos" to absolve it from responsibility and to shift that responsibility
exclusively onto the "Yotai Maru" the vessel which had observed carefully the mandate of Rule 18 (a).
Moreover, G. Urrutia and Company v. Baco River Plantation Company25 invoked by the Court of Appeals seems
simply inappropriate and inapplicable. For the collision in the Urrutia case was between a sailing vessel, on the
one hand, and a power-driven vessel, on the other; the Rules, of course, imposed a special duty on the power-
driven vessel to watch the movements of a sailing vessel, the latter being necessarily much slower and much
less maneuverable than the power-driven one. In the case at bar, both the "Don Carlos" and the "Yotai Maru"
were power-driven and both were equipped with radar; the maximum speed of the "Yotai Maru" was thirteen
(13) knots while that of the "Don Carlos" was eleven (11) knots. Moreover, as already noted, the "Yotai
Maru" precisely took last minute measures to avert collision as it saw the "Don Carlos" turning to portside: the
"Yotai Maru" turned "hard starboard" and stopped its engines and then put its engines "full astern."
Thus, the Court agrees with Judge Cuevas (just as it had agreed with Reyes, L.B., J.), with Judge Fernandez and
Nocon, J.,26 that the "Don Carlos" had been negligent and that its negligence was the sole proximate cause of the
collision and of the resulting damages.
FOR ALL THE FOREGOING, the Decision of the Court of Appeals dated 26 November 1980 in C.A.-G.R. No.
61206-R is hereby REVERSED and SET ASIDE. The decision of the trial court dated 22 September 1975 is
hereby REINSTATED and AFFIRMED in its entirety. Costs against private respondent.
SO ORDERED.
Fernan C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Gancayco, Padilla, Bidin, Sarmiento, Grio-
Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49407 August 19, 1988
NATIONAL DEVELOPMENT COMPANY, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.
No. L-49469 August 19, 1988
MARITIME COMPANY OF THE PHILIPPINES, petitioner-appellant,
vs.
THE COURT OF APPEALS and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents-
appellees.
Balgos & Perez Law Office for private respondent in both cases.
PARAS, J.:
These are appeals by certiorari from the decision * of the Court of Appeals in CA G.R. No: L- 46513-R entitled
"Development Insurance and Surety Corporation plaintiff-appellee vs. Maritime Company of the Philippines
and National Development Company defendant-appellants," affirming in toto the decision ** in Civil Case No.
60641 of the then Court of First Instance of Manila, Sixth Judicial District, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered ordering the defendants National Development
Company and Maritime Company of the Philippines, to pay jointly and severally, to the
plaintiff Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY
FOUR THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS
(364,915.86) with the legal interest thereon from the filing of plaintiffs complaint on April
22, 1965 until fully paid, plus TEN THOUSAND PESOS (Pl0,000.00) by way of damages as
and for attorney's fee.
On defendant Maritime Company of the Philippines' cross-claim against the defendant
National Development Company, judgment is hereby rendered, ordering the National
Development Company to pay the cross-claimant Maritime Company of the Philippines the
total amount that the Maritime Company of the Philippines may voluntarily or by
compliance to a writ of execution pay to the plaintiff pursuant to the judgment rendered in
this case.
With costs against the defendant Maritime Company of the Philippines.
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
The evidence before us shows that in accordance with a memorandum agreement entered
into between defendants NDC and MCP on September 13, 1962, defendant NDC as the first
preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati'
appointed defendant MCP as its agent to manage and operate said vessel for and in its
behalf and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New
York loaded on board the vessel "Dona Nati" at San Francisco, California, a total of 1,200
bales of American raw cotton consigned to the order of Manila Banking Corporation, Manila
and the People's Bank and Trust Company acting for and in behalf of the Pan Asiatic
Commercial Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K7-A
& L-2 to L-7-A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto
Boekui, Kaisa, Ltd., consigned to the order of Manila Banking Corporation consisting of 200
cartons of sodium lauryl sulfate and 10 cases of aluminum foil (Exhs. M & M-1). En route to
Manila the vessel Dofia Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay,
Japan with a Japanese vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid
cargo of American raw cotton were lost and/or destroyed, of which 535 bales as damaged
were landed and sold on the authority of the General Average Surveyor for Yen 6,045,-500
and 15 bales were not landed and deemed lost (Exh. G). The damaged and lost cargoes was
worth P344,977.86 which amount, the plaintiff as insurer, paid to the Riverside Mills
Corporation as holder of the negotiable bills of lading duly endorsed (Exhs. L-7-A, K-8-A, K-
2-A, K-3-A, K-4-A, K-5-A, A- 2, N-3 and R-3}. Also considered totally lost were the aforesaid
shipment of Kyokuto, Boekui Kaisa Ltd., consigned to the order of Manila Banking
Corporation, Manila, acting for Guilcon, Manila, The total loss was P19,938.00 which the
plaintiff as insurer paid to Guilcon as holder of the duly endorsed bill of lading (Exhibits M-1
and S-3). Thus, the plaintiff had paid as insurer the total amount of P364,915.86 to the
consignees or their successors-in-interest, for the said lost or damaged cargoes. Hence,
plaintiff filed this complaint to recover said amount from the defendants-NDC and MCP as
owner and ship agent respectively, of the said 'Dofia Nati' vessel. (Rollo, L-49469, p.38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then Court of First
Instance of Manila an action for the recovery of the sum of P364,915.86 plus attorney's fees of P10,000.00
against NDC and MCP (Record on Appeal), pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the action has
prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp. 7-14). DISC filed an
Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965 (Record on Appeal, pp. 14-24). On
June 29, 1965, the trial court deferred the resolution of the motion to dismiss till after the trial on the merits
(Record on Appeal, p. 32). On June 8, 1965, MCP filed its answer with counterclaim and cross-claim against
NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp. 22-24). It also
filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp. 39-40). However, on October 16,
1965, NDC's answer to DISC's complaint was stricken off from the record for its failure to answer DISC's
written interrogatories and to comply with the trial court's order dated August 14, 1965 allowing the
inspection or photographing of the memorandum of agreement it executed with MCP. Said order of October
16, 1965 likewise declared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to
set aside the order of October 16, 1965, but the trial court denied it in its order dated September 21, 1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court rendered a
decision ordering the defendants MCP and NDC to pay jointly and solidarity to DISC the sum of P364,915.86
plus the legal rate of interest to be computed from the filing of the complaint on April 22, 1965, until fully paid
and attorney's fees of P10,000.00. Likewise, in said decision, the trial court granted MCP's crossclaim against
NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17, 1970 after its
motion to set aside the decision was denied by the trial court in its order dated February 13,1970.
On November 17,1978, the Court of Appeals promulgated its decision affirming in toto the decision of the trial
court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No. 49469. On July
25,1979, this Court ordered the consolidation of the above cases (Rollo, p. 103). On August 27,1979, these
consolidated cases were given due course (Rollo, p. 108) and submitted for decision on February 29, 1980
(Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF COMMERCE AND NOT
SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHERWISE KNOWN AS THE CARRIAGE OF GOODS BY SEA
ACT IN DETERMINING THE LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS
VESSEL "DONA NATI" WITH THE YASUSHIMA MARU"OCCURRED AT ISE BAY, JAPAN OR OUTSIDE THE
TERRITORIAL JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE C0MPLAINT FOR REIMBURSEMENT FILED BY THE
INSURER, HEREIN PRIVATE RESPONDENT-APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-
APPELLANT. (pp. 1-2, Brief for Petitioner-Appellant National Development Company; p. 96, Rollo).
On its part, MCP assigned the following alleged errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT DEVELOPMENT
INSURANCE AND SURETY CORPORATION HAS NO CAUSE OF ACTION AS AGAINST PETITIONER MARITIME
COMPANY OF THE PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CAUSE OF ACTION OF
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION IF ANY EXISTS AS AGAINST HEREIN
PETITIONER MARITIME COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION AND
HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE PRIVATE RESPONDENTS
EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF THAT THE COLLISION OF THE SS DONA NATI AND
THE YASUSHIMA MARU WAS DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE
COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE COMPLEMENTS OF THE
YASUSHIMA MARU WITHOUT THE FAULT OR NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE CODE OF COMMERCE
PETITIONER APPELLANT MARITIME COMPANY OF THE PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS
DONA NATI OWNED BY CO-PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID
PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR LOSS OF OR DAMAGES TO
CARGO RESULTING IN THE COLLISION OF SAID VESSEL, WITH THE JAPANESE YASUSHIMA MARU.
V carrier, is not exempt from liability for damages arising from collision due to the fault or negligence of the
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR DAMAGES TO THE CARGO
OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES WERE CAUSED IN THE AMOUNT OF P344,977.86
INSTEAD OF ONLY P110,000 AT P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN
HOLDING THAT PARAGRAPH 1O OF THE BILLS OF LADING HAS NO APPLICATION IN THE INSTANT CASE
THERE BEING NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS NATIONAL DEVELOPMENT
COMPANY AND COMPANY OF THE PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT
DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF P364,915.86 WITH LEGAL INTEREST
FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEYS FEES
INSTEAD OF SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS COUNTERCLAIM
IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES AND THE COSTS. (pp. 1-4, Brief for the
Maritime Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or destruction of
goods due to collision of vessels outside Philippine waters, and the extent of liability as well as the rules of
prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act should apply to the
case at bar and not the Civil Code or the Code of Commerce. Under Section 4 (2) of said Act, the carrier is not
responsible for the loss or damage resulting from the "act, neglect or default of the master, mariner, pilot or
the servants of the carrier in the navigation or in the management of the ship." Thus, NDC insists that based on
the findings of the trial court which were adopted by the Court of Appeals, both pilots of the colliding vessels
were at fault and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea Act.
Instead, Article 287 of the Code of Commerce was applied and both NDC and MCP were ordered to reimburse
the insurance company for the amount the latter paid to the consignee as earlier stated.
This issue has already been laid to rest by this Court of Eastern Shipping Lines Inc. v. IAC (1 50 SCRA 469-470
[1987]) where it was held under similar circumstance "that the law of the country to which the goods are to be
transported governs the liability of the common carrier in case of their loss, destruction or deterioration"
(Article 1753, Civil Code). Thus, the rule was specifically laid down that for cargoes transported from Japan to
the Philippines, the liability of the carrier is governed primarily by the Civil Code and in all matters not
regulated by said Code, the rights and obligations of common carrier shall be governed by the Code of
commerce and by laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special law, is
merely suppletory to the provision of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from San Francisco,
California and Tokyo, Japan to the Philippines and that they were lost or due to a collision which was found to
have been caused by the negligence or fault of both captains of the colliding vessels. Under the above ruling, it
is evident that the laws of the Philippines will apply, and it is immaterial that the collision actually occurred in
foreign waters, such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for reasons of
public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them according to all circumstances of each case. Accordingly, under Article
1735 of the same Code, in all other than those mentioned is Article 1734 thereof, the common carrier shall be
presumed to have been at fault or to have acted negigently, unless it proves that it has observed the
extraordinary diligence required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil Code, so that no
reversible error can be found in respondent courses application to the case at bar of Articles 826 to 839, Book
Three of the Code of Commerce, which deal exclusively with collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is imputable to the
personnel of a vessel, the owner of the vessel at fault, shall indemnify the losses and damages incurred after an
expert appraisal. But more in point to the instant case is Article 827 of the same Code, which provides that if
the collision is imputable to both vessels, each one shall suffer its own damages and both shall be solidarily
responsible for the losses and damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839, the shipowner or
captain. Primary liability is imposed on the shipowner or carrier in recognition of the universally accepted
doctrine that the shipmaster or captain is merely the representative of the owner who has the actual or
constructive control over the conduct of the voyage (Y'eung Sheng Exchange and Trading Co. v. Urrutia & Co.,
12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply only to domestic
trade and not to foreign trade. Aside from the fact that the Carriage of Goods by Sea Act (Com. Act No. 65) does
not specifically provide for the subject of collision, said Act in no uncertain terms, restricts its application "to
all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade." Under Section I
thereof, it is explicitly provided that "nothing in this Act shall be construed as repealing any existing provision
of the Code of Commerce which is now in force, or as limiting its application." By such incorporation, it is
obvious that said law not only recognizes the existence of the Code of Commerce, but more importantly does
not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance and Surety
Corporation, has no cause of action against it because the latter did not prove that its alleged subrogers have
either the ownership or special property right or beneficial interest in the cargo in question; neither was it
proved that the bills of lading were transferred or assigned to the alleged subrogers; thus, they could not
possibly have transferred any right of action to said plaintiff- appellee in this case. (Brief for the Maritime
Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of the duly
endorsed bills of lading covering the shipments in question and an examination of the invoices in particular,
shows that the actual consignees of the said goods are the aforementioned companies. Moreover, no less than
MCP itself issued a certification attesting to this fact. Accordingly, as it is undisputed that the insurer, plaintiff
appellee paid the total amount of P364,915.86 to said consignees for the loss or damage of the insured cargo, it
is evident that said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-
appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarity with NDC because it is merely the manager and operator
of the vessel Dona Nati not a ship agent. As the general managing agent, according to MCP, it can only be liable
if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of September 13, 1962
(Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term broad enough to include the concept of
Ship-agent in Maritime Law. In fact, MCP was even conferred all the powers of the owner of the vessel,
including the power to contract in the name of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40).
Consequently, under the circumstances, MCP cannot escape liability.
It is well settled that both the owner and agent of the offending vessel are liable for the damage done where
both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281 [1906]); that in case of collision,
both the owner and the agent are civilly responsible for the acts of the captain (Yueng Sheng Exchange and
Trading Co. v. Urrutia & Co., supra citing Article 586 of the Code of Commerce; Standard Oil Co. of New York v.
Lopez Castelo, 42 Phil. 256, 262 [1921]); that while it is true that the liability of the naviero in the sense of
charterer or agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible
from the general doctrine of jurisprudence under the Civil Code but more specially as regards contractual
obligations in Article 586 of the Code of Commerce. Moreover, the Court held that both the owner and agent
(Naviero) should be declared jointly and severally liable, since the obligation which is the subject of the action
had its origin in a tortious act and did not arise from contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45
Phil. 423 [1923]). Consequently, the agent, even though he may not be the owner of the vessel, is liable to the
shippers and owners of the cargo transported by it, for losses and damages occasioned to such cargo, without
prejudice, however, to his rights against the owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).
As to the extent of their liability, MCP insists that their liability should be limited to P200.00 per package or per
bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the MCP argues that the law on averages
should be applied in determining their liability.
MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of lading and
corroborated no less by invoices offered as evidence ' during the trial. Besides, common carriers, in the
language of the court in Juan Ysmael & Co., Inc. v. Barrette et al., (51 Phil. 90 [1927]) "cannot limit its liability
for injury to a loss of goods where such injury or loss was caused by its own negligence." Negligence of the
captains of the colliding vessel being the cause of the collision, and the cargoes not being jettisoned to save
some of the cargoes and the vessel, the trial court and the Court of Appeals acted correctly in not applying the
law on averages (Articles 806 to 818, Code of Commerce).
MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS Yasushima Maru and
not to the Japanese Coast pilot navigating the vessel Dona Nati need not be discussed lengthily as said claim is
not only at variance with NDC's posture, but also contrary to the factual findings of the trial court affirmed no
less by the Court of Appeals, that both pilots were at fault for not changing their excessive speed despite the
thick fog obstructing their visibility.
Finally on the issue of prescription, the trial court correctly found that the bills of lading issued allow trans-
shipment of the cargo, which simply means that the date of arrival of the ship Dona Nati on April 18,1964 was
merely tentative to give allowances for such contingencies that said vessel might not arrive on schedule at
Manila and therefore, would necessitate the trans-shipment of cargo, resulting in consequent delay of their
arrival. In fact, because of the collision, the cargo which was supposed to arrive in Manila on April 18, 1964
arrived only on June 12, 13, 18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been
saved, they could have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the
instant case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the lost or
damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6) of the Carriage of
Goods by Sea Act.
PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the assailed decision of the
respondent Appellate Court is AFFIRMED.
SO ORDERED.
Melencio-Herrera, (Chairperson), Padilla, and Sarmiento, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 100446 January 21, 1993
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD., respondent.
Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.
Napoleon Rama collaborating counsel for petitioner.
Dollete, Blanco, Ejercito & Associates for private respondent.
MELO, J.:
This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals
dated June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed by
herein petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the Regional
Trial Court of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425 granting
private respondent's prayer for execution for the full amount of the judgment award. The trial court in so
doing swept aside petitioner's opposition which was grounded on the real and hypothecary nature of
petitioner's liability as ship owner. The application of this established principle of maritime law would
necessarily result in a probable reduction of the amount to be recovered by private respondent, since it would
have to share with a number of other parties similarly situated in the insurance proceeds on the vessel that
sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of
maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier
which sank on a voyage from Hongkong to the Philippines on October 31, 1980. Private respondent General
Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the other hand, is a foreign insurance
company pursuing its remedies as a subrogee of several cargo consignees whose respective cargo sank with
the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the
shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was initially
investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found that such
sinking was due toforce majeure and that subject vessel, at the time of the sinking was seaworthy. This
administrative finding notwithstanding, the trial court in said Civil Case No. 144425 found against the carrier
on the basis that the loss subject matter therein did not occur as a result of force majeure. Thus, in said case,
plaintiff GAFLAC was allowed to prove, and. was later awarded, its claim. This decision in favor of GAFLAC was
elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of Appeals, 188 SCRA 387 [1990]), with
Aboitiz, like its ill-fated vessel, encountering rough sailing. The attempted execution of the judgment award in
said case in the amount of P1,072,611.20 plus legal interest has given rise to the instant petition.
On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the vessel
was seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such ruling was
likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v. Court of Appeals, et
al., August 28, 1991 and was sustained. Part of the task resting upon this Court, therefore, is to reconcile the
resulting apparent contrary findings in cases originating out of a single set of facts.
It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the doctrine
of limited liability on the totality of the claims vis a vis the losses brought about by the sinking of the vessel
M/V P. ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an issue which begs to
be resolved considering that a number of suits alleged in the petition number about 110 (p. 10 and pp. 175 to
183, Rollo) still pend and whose resolution shall well-nigh result in more confusion than presently attends the
instant case.
In support of the instant petition, the following arguments are submitted by the petitioner:
1. The Limited Liability Rule warrants immediate stay of execution of judgment to prevent
impairment of other creditors' shares;
2. The finding of unseaworthiness of a vessel is not necessarily attributable to the
shipowner; and
3 The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-
26, Rollo.)
On the other hand, private respondent opposes the foregoing contentions, arguing that:
1. There is no limited liability to speak of or applicable real and hypothecary rule under
Article 587, 590, and 837 of the Code of Commerce in the face of the facts found by the
lower court (Civil Case No. 144425), upheld by the Appellate Court (CA G.R. No. 10609), and
affirmed in toto by the Supreme Court in G.R. No. 89757 which cited G.R. No. 88159 as
the Law of the Case; and
2. Under the doctrine of the Law of the Case, cases involving the same incident, parties
similarly situated and the same issues litigated should be decided in conformity therewith
following the maximstare decisis et non quieta movere. (pp. 225 to 279, Rollo.)
Before proceeding to the main bone of contention, it is important to determine first whether or not the
Resolution of this Court in G.R. No. 88159, Aboitiz Shipping, Corporation vs. The Honorable Court of Appeals and
Allied Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the instant
petition as argued by respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that the
same settles two principal matters, first of which is that the doctrine of primary administrative jurisdiction is
not applicable therein; and second is that a limitation of liability in said case would render inefficacious the
extraordinary diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one now in
issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that which
attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package limitation clauses,
which in that case was contained in Section 8 of the Bill of Lading and which limited the carrier's liability to
US$500.00 for the cargo whose value was therein sought to be recovered. Said resolution did not tackle the
matter of the Limited Liability Rule arising out of the real and hypothecary nature of maritime law, which was
not raised therein, and which is the principal bone of contention in this case. While the matters threshed out in
G.R. No. 88159, particularly those dealing with the issues on primary administrative jurisdiction and the
package liability limitation provided in the Bill of Lading are now settled and should no longer be touched, the
instant case raises a completely different issue. It appears, therefore, that the resolution in G.R. 88159
adverted to has no bearing other than factual to the instant case.
This brings us to the primary question herein which is whether or not respondent court erred in granting
execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the
application of the limited liability enunciated under the appropriate articles of the Code of Commerce. The
articles may be ancient, but they are timeless and have remained to be good law. Collaterally, determination of
the question of whether execution of judgments which have become final and executory may be stayed is also
an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand that the very purpose
for its existence is to see to the accomplishment of the ends of justice. Consistent with this view, a number of
decisions have originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if
such shall result in the subverting of substantial justice. The right to an execution after finality of a decision is
certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that:
. . . It is a truism that every court has the power "to control, in the furtherance of justice, the
conduct of its ministerial officers, and of all other persons in any manner connected with a
case before it, in every manner appertaining thereto. It has also been said that:
. . . every court having jurisdiction to render a particular judgment has
inherent power to enforce it, and to exercise equitable control over such
enforcement. The court has authority to inquire whether its judgment
has been executed, and will remove obstructions to the enforcement
thereof. Such authority extends not only to such orders and such writs as
may be necessary to carry out the judgment into effect and render it
 binding and operative, but also to such orders and such writs as may be
necessary to prevent an improper enforcement of the judgment. If a
judgment is sought to be perverted and made a medium of
consummating a wrong the court on proper application can prevent it.
(at p. 359)
and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that:
The rule that once a decision becomes final and executory, it is the ministerial duty of the
court to order its execution, admits of certain exceptions as in cases of special and
exceptional nature where it becomes the imperative in the higher interest of justice to
direct the suspension of its execution (Vecine v. Geronimo, 59 OG 579); whenever it is
necessary to accomplish the aims of justice (Pascual v Tan, 85 Phil. 164); or when certain
facts and circumstances transpired after the judgment became final which would render the
execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354). (at p. 201)
We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out of
the real and hypothecary nature of maritime law should apply in this and related cases. We rule in the
affirmative.
In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No. 89757
upholding private respondent's claims in that particular case, which the Court of Appeals took to mean that
this Court has "considered, passed upon and resolved Aboitiz's contention that all claims for the losses should
first be determined before GAFLAC's judgment may be satisfied," and that such ruling "in effect necessarily
negated the application of the limited liability principle" (p. 175, Rollo). Such conclusion is not accurate. The
decision in G.R. No. 89757 considered only the circumstances peculiar to that particular case, and was not
meant to traverse the larger picture herein brought to fore, the circumstances of which heretofore were not
relevant. We must stress that the matter of the Limited Liability Rule as discussed was never in issue in all
prior cases, including those before the RTCs and the Court of Appeals. As discussed earlier, the "limited
liability" in issue before the trial courts referred to the package limitation clauses in the bills of lading and not
the limited liability doctrine arising from the real and hypothecary nature of maritime trade. The latter rule
was never made a matter of defense in any of the cases a quo, as properly it could not have been made so since
it was not relevant in said cases. The only time it could come into play is when any of the cases involving the
mishap were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has
now been brought before the Court.
The real and hypothecary nature of maritime law simply means that the liability of the carrier in connection
with losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations
or which stands as the guaranty for their settlement. It has its origin by reason of the conditions and risks
attending maritime trade in its earliest years when such trade was replete with innumerable and unknown
hazards since vessels had to go through largely uncharted waters to ply their trade. It was designed to offset
such adverse conditions and to encourage people and entities to venture into maritime commerce despite the
risks and the prohibitive cost of shipbuilding. Thus, the liability of the vessel owner and agent arising from the
operation of such vessel were confined to the vessel itself, its equipment, freight, and insurance, if any, which
limitation served to induce capitalists into effectively wagering their resources against the consideration of the
large profits attainable in the trade.
It might be noteworthy to add in passing that despite the modernization of the shipping industry and the
development of high-technology safety devices designed to reduce the risks therein, the limitation has not only
persisted, but is even practically absolute in well-developed maritime countries such as the United States and
England where it covers almost all maritime casualties. Philippine maritime law is of Anglo-American
extraction, and is governed by adherence to both international maritime conventions and generally accepted
practices relative to maritime trade and travel. This is highlighted by the following excerpts on the limited
liability of vessel owners and/or agents;
Sec. 183. The liability of the owner of any vessel, whether American or foreign, for any
embezzlement, loss, or destruction by any person of any person or any property, goods, or
merchandise shipped or put on board such vessel, or for any loss, damage, or forfeiture,
done, occasioned, or incurred, without the privity or knowledge of such owner or owners
shall not exceed the amount or value of the interest of such owner in such vessel, and her
freight then pending. (Section 183 of the US Federal Limitation of Liability Act).
and
1. The owner of a sea-going ship may limit his liability in accordance with Article 3 of this
Convention in respect of claims arising, from any of the following occurrences, unless the
occurrence giving rise to the claim resulted from the actual fault or privity of the owner;
(a) loss of life of, or personal injury to, any person being carried in the ship, and loss of, or
damage to, any property on board the ship.
(b) loss of life of, or personal injury to, any other person, whether on land or on water, loss
of or damage to any other property or infringement of any rights caused by the act, neglect
or default the owner is responsible for, or any person not on board the ship for whose act,
neglect or default the owner is responsible: Provided, however, that in regard to the act,
neglect or default of this last class of person, the owner shall only be entitled to limit his
liability when the act, neglect or default is one which occurs in the navigation or the
management of the ship or in the loading, carriage or discharge of its cargo or in the
embarkation, carriage or disembarkation of its passengers.
(c) any obligation or liability imposed by any law relating to the removal of wreck and
arising from or in connection with the raising, removal or destruction of any ship which is
sunk, stranded or abandoned (including anything which may be on board such ship) and
any obligation or liability arising out of damage caused to harbor works, basins and
navigable waterways. (Section 1, Article I of the Brussels International Convention of 1957)
In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute from
which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of
Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods which he
loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with
all her equipment and the freight it may have earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests
in the common fund for the results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary,
of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this section (on
collisions), shall be understood as limited to the value of the vessel with all its appurtenances
and freightage served during the voyage. (Emphasis supplied)
Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587),
acts of the captain (Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter
of near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because as
could be seen, the reasons for its being are still apparently much in existence and highly regarded.
We now come to its applicability in the instant case. In the few instances when the matter was considered by
this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability
Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or agent
(Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of
Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus, is whether there is
a finding of such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as well
as the entirety of the records in the instant case will show that there has been no actual finding of negligence
on the part of petitioner. In its Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds that the vessel M/V "Aboitiz" and its
cargo were not lost due to fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of the
Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new and
additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the cause of
the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the master to
exercise extraordinary diligence. Indeed, there appears to have been no evidence presented sufficient to form
a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this Court will add or which, after all, might not prevail, depending on the evidence presented in each. We, therefore, rule that the
subtract to such evidence to justify a conclusion to the contrary. pro-rated share of each claim can only be found after all the cases shall have been decided.
The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending
underscored by the fact that in the Country Banker's case, supra, arising from the same sinking, the Court freightage should now be deposited in trust. Moreover, petitioner should institute the necessary limitation and
sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force majeure. distribution action before the proper admiralty court within 15 days from the finality of this decision, and
On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on petitioner's thereafter deposit with it the proceeds from the insurance company and pending freightage in order to
lap, absent a factual basis for such a conclusion. The unseaworthiness found in some cases where the same has safeguard the same pending final resolution of all incidents, for final pro-rating and settlement thereof.
been ruled to exist is directly attributable to the vessel's crew and captain, more so on the part of the latter ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila, Branch
since Article 612 of the Code of Commerce provides that among the inherent duties of a captain is to examine a IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The trial court is
vessel before sailing and to comply with the laws of navigation. Such a construction would also put matters to hereby directed to desist from proceeding with the execution of the judgment rendered in Civil Case No.
rest relative to the decision of the Board of Marine Inquiry. While the conclusion therein exonerating the 144425 pending determination of the totality of claims recoverable from the petitioner as the owner of the
captain and crew of the vessel was not sustained for lack of basis, the finding therein contained to the effect M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to deposit the proceeds of the
that the vessel was seaworthy deserves merit. Despite appearances, it is not totally incompatible with the insurance of subject vessel as above-described within fifteen (15) days from finality of this decision. The
findings of the trial court and the Court of Appeals, whose finding of "unseaworthiness" clearly did not pertain temporary restraining order issued in this case dated August 7, 1991 is hereby made permanent.
to the structural condition of the vessel which is the basis of the BMI's findings, but to the condition it was in at the SO ORDERED.
time of the sinking, which condition was a result of the acts of the captain and the crew. Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of
shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while
not absolute, must be swept aside only in the established existence of the most compelling of reasons. In the
absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights aside on
mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely punitive in
nature and must never be taken lightly.
More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to those
of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of claims as
against it. While each individual creditor may, and in fact shall, be allowed to prove the actual amounts of their
respective claims, this does not mean that they shall all be allowed to recover fully thus favoring those who
filed and proved their claims sooner to the prejudice of those who come later. In such an instance, such
creditors too would not also be able to gain access to the assets of the individual shareholders, but must limit
their recovery to what is left in the name of the corporation. Thus, in the case of Lipana v. Development Bank of
Rizal earlier cited, We held that:
In the instant case, the stay of execution of judgment is warranted by the fact that the
respondent bank was placed under receivership. To execute the judgment would unduly
deplete the assets of respondent bank to the obvious prejudice of other depositors and
creditors, since, as aptly stated in Central Bank v. Morfe (63 SCRA 114), after the Monetary
Board has declared that a bank is insolvent and has ordered it to cease operations, the
Board becomes the trustee of its assets for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or preference over another by an attachment,
execution or otherwise. (at p. 261).
In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in their
recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these are the
residual assets of the corporation left over from its operations. In the case of a lost vessel, these are the
insurance proceeds and pending freightage for the particular voyage.
In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the
insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant
can be given precedence over the others by the simple expedience of having filed or completed its action
earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already final and
executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and only
then can all such claims be simultaneously settled, either completely or pro-rata should the insurance
proceeds and freightage be not enough to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to
183,Rollo), together with the corresponding claims and the pro-rated share of each. We likewise note that
some of these cases are still with the Court of Appeals, and some still with the trial courts and which probably
are still undergoing trial. It would not, therefore, be entirely correct to preclude the trial courts from making
their own findings of fact in those cases and deciding the same by allotting shares for these claims, some of
Republic of the Philippines plaintiffs and started on its return to the S. S. Nippon on May 14, 1913. Fifteenth. The plaintiffs took possession
SUPREME COURT of the Nippon on or about May 17, 1913, and continued in possession until about the 1st of July, when the last
Manila of the cargo was shipped to Manila. Sixteenth. The Nippon was floated and towed to Olongapo, where
EN BANC temporary repairs were made, and then brought to Manila. Seventeenth. The Manchuria arrived at Hongkong
G.R. No. L-10051 March 9, 1916 on the evening of May 14, 1913. When the captain and crew left the Nippon and went on board of Manchuria,
ERLANGER & GALINGER, plaintiffs-appellants, they took with them the chronometer, the ship's register, the ship's articles, the ship's log, and as much of the
vs. crew's baggage as a small boat could carry. The balance of the baggage of the crew was packed and left on the
THE SWEDISH EAST ASIATIC CO., (LTD.) ET AL., defendants. THE "OELWERKE TEUTONIA" and NEW deck of the Nippon and was later removed to the Mindoro, without protest on the part of the captain of
ZEALAND INSURANCE CO. (LTD.), appellants. the Nippon , as above indicated. Eighteenth. The cargo was brought to the port of Manila and the following
Gilbert, Haussermann, Cohn and Fisher for plaintiff-appellant. values were fixed:
Rohde and Wright and Lawrence, Ross and Block for defendant-appellants.
Copra (approximately 1317 tons) valued at, less P142,657.05
PER CURIAM:
cost of sale by Collector of Customs
The facts in this case are as follows:
First. The steamship Nippon loaded principally with copra and with some other general merchandise sailed
General cargo sold at customhouse 5,939.68
from Manila on May 7, 1913, bound for Singapore. Second. The steamship Nippon went aground on
Scarborough Reef about 4.30 in the afternoon of May 8, 1913. Third. Scarborough Reef is about 120 to 130
Agar-agar 5,635.00
miles from the nearest point on the Island of Luzon. Fourth. On May 9, 1913, the chief officer, Weston, and nine
members of the crew left the Nippon and succeeded in reaching the coast of Luzon at Santa Cruz, Zambales, on
Camphor 1,850.00
the morning of May 12, 1913. Fifth. On May 12, 1913, the chief officer sent a telegram to Helm, the Director of
the Bureau of Navigation, at Manila, which was as follows:
Curios 150.00
SANTA CRUZ, ZAMBALES,
Total 156,231.73
May 12, 1913. Nineteenth. The ship was valued at P250.000. The plaintiffs' claim against the ship was settled for L15,000 or
about P145,800.
DIRECTOR OF BUREAU OF NAVIGATION, Manila. The plaintiffs brought the present action (August 5, 1913; amended complaint, September 23, 1913) against
Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone. the insurance companies and underwriters, who represented the cargo salved from the Nippon, to have the
12.15 p. m. amount of salvage, to which the plaintiffs were entitled, determined.
The case came on for trial before the Honorable A. S. Crossfield. The Oelwerke Teutonia, a corporation,
(Sgd.) WESTON.
appeared as claimant of the copra. The New Zealand Insurance Company appeared as insurer and assignee of
the owners of 33 crates of agar-agar; The Tokio Marine Insurance Company appeared as the insurer and
Sixth. On the same day (May 12) at 1.30 p. m., the Government of the Philippine Islands ordered the coast
assignee of 1,000 cases of bean oil and two cases of bamboo lacquer work; and The Thames and Mersey
guard cutter Mindoro with life-saving appliances to the scene of the wreck of the Nippon . Seventh. On the same
Marine Insurance Company appeared as a reinsurer to the extent of P6,500 on the cargo of copra. The court
day (May 12) at 3 p. m. the steamship Manchuria sailed from Manila for Hongkong and was requested to pass
found that the plaintiffs were "entitled to recover one-half of the net proceeds from the property salved and
by Scarborough Reef. Eighth. The Manchuria arrived at Scarborough Reef some time before the arrival of
sold (which has nothing to do with the steamship itself), and one-half the value of the property delivered to the
theMindoro on May 13, 1913, and took on board the captain and the remainder of the crew. Ninth.
claimants."
The Manchuriawas still near Scarborough Reef when the Mindoro arrived. The captain of
Judgment was entered as follows:
the Manchuria informed the captain of the Mindoro that the captain and crew of the Nippon were on board
In favor of the plaintiffs, Erlanger & Galinger for one-half of the net proceeds of sales amounting to
the Manchuria and were proceeding to Hongkong. Tenth. The captain of the Mindoro offered to render
P47,298.36 and one-half of the interest accruing thereon, and against Carl Maeckler for the sum of
assistance to the captain and crew of the Nippon , which assistance was declined The Mindoro proceeded to
P925, and against the New Zealand Insurance Company (Ltd.) for the sum of P2,800, and against
the Nippon and removed the balance of the baggage of the officers and crew, which was found upon the deck.
whomever the two cases marked R W, Copenhagen, were delivered to, and for the sum of
Eleventh. The Mindoro proceeded to Santa Cruz, Zambales, where the chief officer, Weston, and the nine
P2,370.68, out of the proceeds of the sale of 1,000 cases of vegetable oil, and in favor of the 'Oelwerke
members of the crew were taken on board and brought to Manila, arriving there on May 14, 1913. Twelfth. On
Teutonia' for the sum of P71,328.53, now deposited with the Hongkong & Shanghai Banking
May 13, 1913, Dixon, captain of the Manchuria sent the following message:
Corporation, together with one-half of the interest thereon.
S. S. `MANCHURIA', May 13, 1913. No costs were taxed.
The Oelwerke Teutonia, The New Zealand Insurance Company (Ltd.), and Erlanger & Galinger appealed from
All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel stranded May 9. She is this decision. The Oelwerke Teutonia made the following assignments of error: "
full of water fore and aft and is badly ashore. Ship abandoned. Proceed Hongkong. (I) The court below erred in finding that the plaintiffs are salvors of the copra in question. (II) The
court erred in holding that the plaintiffs are entitled to recover one-half of the proceeds of the copra.
(Sgd.) "DIXON.
(III) The court erred in rendering judgment in favor of the plaintiffs for half of the proceeds of the
copra. (IV) The court erred in disallowing the defendants' counterclaim. (V) The court erred in
The captain of the Nippon saw the above message before it was sent. Thirteenth. On May 14, 1913, the plaintiff
overruling defendant's motion for a new trial."
applied to the Director of Navigation for a charter of a coast guard cutter, for the purpose of proceeding to "the
The New Zealand Insurance Company (Ltd.) made the following assignments of error:
stranded and abandoned steamer Nippon ." Fourteenth. The coast guard cutter Mindoro was chartered to the
 Now comes the New Zealand Insurance Company (Ltd.), defendant and appellant in the above-
entitled cause, and avers that in the proceedings in the said cause, in the Court of First Instance of
Manila, there was manifest error to the prejudice of this appellant, in this, to wit:
(I) That said court found that the plaintiffs are entitled to one-half of the value of thirty crates of agar-
agar delivered to his appellant; (II) That the said court ordered judgment in favor of the plaintiffs and
against this appellant for the sum of P2,800; (III) That the said court denied the motion of this
appellant for a new trial.
The appellants, Erlanger & Galinger, made the following assignments of error:
Error No. 1. The court erred in ruling that the plaintiffs were not entitled to a reimbursement of their
expenses, out of the gross value of the salved property, before the division of the remainder into
moieties between the salvors and the claimants. Error No. 2. The court erred in holding that the cargo
and the vessel are equally chargeable with the expense of salvage. Error No. 3. The court erred in
refusing to award the plaintiffs, out of the proceeds of the sale of the cargo, the sum of P28,755.86 as
compensation and the sum of P98,720 as reimbursement of expenses, or a total of P127,475.08. Error
No. 4. The court erred in awarding into the claimaint 'Oelwerke Teutonia' the sum of P17,328.53, or
any part thereof out of the proceeds of the salved cargo. Error No. 5. The court erred in denying the
motion of the plaintiffs for a new trial."
The assignments of error and the briefs of all of the appellants raised by three questions: (1) Was the ship
abandoned? (2) Was the salvage conducted with skill, diligence, and efficiency? (3) Was the award justified?
The general rules and principles governing salvage services and salvage awards are well settled. This branch of
the law of the sea dates back to the early history of navigation. We find the recorded in the Laws of Oleron,
which were promulgated sometime before the year 1266, at article IV:
If a vessel, departing with her lading from Bordeaux, or any other place, happens in the course of her
voyage, to be rendered unfit to proceed therein, and the mariners save as much of the lading as
possibly they can; if the merchants require their goods of the master, he may deliver them if he
pleases, they paying the freight in proportion to the part of the voyage that is performed, and the
costs of the salvage. But if the master can readily repair his vessel, he may do it; of if he pleases, he
may freight another ship to perform his voyage. And if he has promised the people who help him to
save the ship the third, or the half part of the goods saved for the danger they ran, the judicatures of
the country should consider the pains and trouble they have been at, and reward them accordingly,
without any regard to the promises made them by the parties concerned in the time of their distress.
(See 30 Fed. Cas., at page 1172).
The courts of the United States and England have, in a long line of adjudicated cases, discussed the various
phases of this important subject. In general, salvage may be defined as a service which one person renders to
the owner of a ship or goods, by his own labor, preserving the goods or the ship which the owner or those
entrusted with the care of them have either abandoned in distress at sea, or are unable to protect and secure.
The Supreme Court of the United States and the other Federal Courts of the United States have had occasion
numerous times to quote with approval the following definition from Flanders on Maritime Law:
Salvage is founded on the equity of remunerating private and individual services performed in
saving, in whole or in part, a ship or its cargo from impending peril, or recovering them after actual
loss. It is a compensation for actual services rendered to the property charged with it, and is allowed
for meritorious conduct of the salvor, and in consideration of a benefit conferred upon the person
whose property he has saved. A claim for salvage rests on the principle that, unless the property be in
fact saved by those who claim the compensation, it can not be allowed, however benevolent their
intention and however heroic their conduct. (The Job H. Jackson, 161 Fed. Rep., 1015, 1017; The
Amelia, 1 Cranch, 1; The Alberta, 9 Cranch, 369; Clarke vs. Dodge Healy, 4 Wash. C. C., 651; Fed. Cas.
No. 2849.)
In the case of Williamson vs. The Alphonso (Fed. Cas., No. 17749; 30 Fed. Cas. 4, 5), the court laid down
practically the same rule.
The relief of property from an impending peril of the sea, by the voluntary exertions of those who are
under no legal obligation to render assistance, and the consequent ultimate safety of the property,
constitute a case of salvage. It may be a case of more or less merit, according to the degree of peril in
which the property was, and the danger and difficulty of relieving it; but these circumstances affect
the degree of the service and not its nature.
In Blackwall vs. Saucelito Tug Company (10 Wall., 1, 12), the court said:
Salvage is the compensation allowed to persons by whose assistance a ship or her cargo has been
saved, in whole or in part, from impending peril on the sea, or in recovering such property from
actual loss, as in case of shipwreck, derelict, or recapture.
It will be noticed from the above definitions that there are certain definite conditions which must always exist
in a case of pure salvage. The Supreme Court of the United States, speaking through Mr. Justice Clifford, in the
case of The Mayflower vs. The Sabine (101 U. S., 384) makes those conditions three (p. 384).
Three elements are necessary to a valid salvage claim: (1) A marine peril. (2) Service voluntarily
rendered when not required as an existing duty or from a special contract. (3) Success, in whole or in
part, or that the service rendered contributed to such success.
These are the general principles governing salvage.
The question whether or not a particular ship and her cargo is a fit object of salvage depends upon her
condition at the time the salvage services are performed. In the present case the plaintiff-appellant claims that
the Nipponwas a derelict or quasi-derelict and that their claim should be adjudged upon this cases. A derelict is
defined as "A ship or her cargo which is abandoned and deserted at sea by those who were in charge of it,
without any hope of recovering it (sine spe recuperandi), or without any intention of returning to it (sine animo
revertendi). Whether property is to be adjudged derelict is determimed by ascertaining what was the intention
and expectation of those in charge of it when they quitted it. If those in charge left with the intention of
returning, or of procuring assistance, the property is not derelict, but if they quitted the property with the
intention of finally leaving it, it is derelict, and a change of their intention and an attempt to return will not
change its nature." (Abbott's Law of Merchant Ships and Seamen, Fourteenth Edition, p. 994.)
This contention of the plaintiffs raises the first question: (1) Was the ship abandoned?
The defendant-appellant Oelwerke Teutonia contends that the captain and the crew did not leave the ship sine
animo revertendi, but that it was their intention to go to Hongkong and procure assistance with which to save
the ship and her cargo. Whether the intention to return exists in a particular case is always difficult to
determine. It is indeed a rare case when the master of the ship will leave without the intention of returning, if
there is the slightest hope of saving his vessel. In the case of The Coromandel (1 Swab., 208) Dr. Lushington
said:
It may be perfectly true that the master and these fifteen men, when they had got on board The Young
Frederick, and were sailing away to Yarmouth, intended, if possible, to employ steamers to go and
rescue the vessel, which was at no great distance. But is not that the case every day? A master and
crew abandon a vessel for the safety of their lives; he does not contemplate returning to use his own
exertions, but the master hardly ever abandons a vessel on the coast without the intention, if he can
obtain assistance, to save his vessel. That does not take away the legal character of derelict. (Norcross
vs. The Laura, 14 Wall., 336.)
Judge Crossfield found that:
At the time the plaintiff commenced the attempt to salve what was possible of the S. S. Nippon and
cargo, it was justified, from all the conditions existing, in believing that it had been abandoned and in
taking possession, even though the master of the vessel intended when he left it, to return and
attempt salvage.
Such intention, if it existed, does not appear to have been very firmly fixed, considering the leisurely
manner in which the master proceeded after he reached the Port of Hongkong.
The evidence amply supports this finding. The chief officer, Weston, upon reaching the coast of Zambales, on
May 12, 1913, sent the following telegram to the Director of the Bureau of Navigation:
SANTA CRUZ, ZAMBALES,
May 12, 1913.
DIRECTOR OF BUREAU OF NAVIGATION, Manila.
Nippon stranded on Scarborough Reef, wants immediate assistance for saving crew boats gone
12.15 p. m.
(Sgd.) R. WESTON.
On the evening of the same day Weston sent the following telegram:
 at 9.30 a. m. S. S. Manchuria was laying to about 1 1/2 miles northward of reef, making signals for me
SANTA CRUZ, ZAMBALES,
to come alongside. I immediately proceeded out to the Manchuria; upon arrival alongside
May 12, 1913.
the Manchuria the captain of the same ship informed me that the S. S. Nippon was abandoned and
DIRECTOR OF BUREAU OF NAVIGATION, Manila. that he had the captain and crew on board for Hongkong. I then asked the captain of the Manchuria if
Left with nine hands at noon, 9th, 26 men still on board, ship well on reef, stern part afloat, about ten the captain of the Nippon cared to go to Hongkong, as I was there to bring him and the crew to Manila
feed of water in holds, starboard list, heavy swell breaking over, little hope of saving ship 6.27 p. if he desired to go. The captain of theManchuria again informed me that the captain of
m. the Nippon intended to go to Hongkong. I answered `All right, I will then go and have a look at
the Nippon and see how badly she is wrecked.' The captain of theManchuria made the remark that
(Sgd.) WESTON.
she was half full of water and that she was very badly wrecked, but that there was still some baggage
left on broad. He also informed me that he had a wire from the Director of Navigation ordering me to
On May 13, 1913, Captain Dixon of the S. S. Manchuria, after rescuing the remainder of the crew, left on board
proceed to Santa Cruz to pick up boat's crew from Nippon . I said, `All right. I will go and get baggage
the Nippon , sent the following telegram to the Director of Navigation.
and have a look at the wreck.' I then left the Manchuria and steamed over to the wreck. On arrival
S. S. `MANCHURIA,' May 13, 1913. alongside of the wreck I took on board all baggage packed standing on deck and sounded around the
ship, fore and aft, finding 11 feet of water forward at low water and 20 feet aft in board, gradually
All rescued from the Nippon . Stranded on extreme north end of shoal. Vessel stranded May 9th. She is decreasing from forward to aft and I found in holds about 8 feet of water and the cargo as far as I
full of water fore and aft, and is badly ashore. Ship abandoned. Proceeding Hongkong 9.40 a. m. could see, on top, was nice and dry, and it is my opinion that with the position the ship is laying in
and with the Southwest monsoon blowing the ship and most of the cargo can be salved, if work is
(Sgd.) DIXON, Master.
started before the heavy typhoon season sets in. After leaving the wreck, I proceeded to Santa Cruz
and picked up the first officer and crew of nine men and brought them to Manila.
On May 14, 1913, after the members of the crew who came ashore with Weston had reached Manila, they
On my second trip to the wreck, May 15th, I examined Nippon more fully and I believe that if the
made the following signed statement:
cargo is taken out the ship can be saved after the holes are pathed up, if this is done before the heavy
MANILA, P. I., May 14, 1913. weather sets in.
Very respectfully,
We, the undersigned officers and part of the crew of the Swedish steamer Nippon, do hereby declare
(Sgd.) GEO. ANDERSON,
that the S. S. Nippon struck on Scarborough Reef, about 4.30 on the afternoon on Thursday May 8
Captain, 'Mindoro.'
1913. Two of her boats were lost after we struck the reef, leaving only two on board and those
damaged. The ship was filled with water and pounding on the reef and we considered her a wreck. In THE DIRECTOR OF NAVIGATION, Manila.
company with the chief officer, we left the ship about noon on Friday, May 9, 1913, in a small boat Copy sent Struckman & Company, May 16, 1913.
and reached Sta. Cruz Zambales, a distance of 130 miles on the morning of Monday, May 12, 1913, (Sgd.) "A. S. Thompson, chief clerk.
and immediately the chief officer wired the Director of Navigation at Manila for assistance to rescue The testimony of Captain Eggert of the Nippon regarding the circumstances of the wreck, is as follows: (2d part
the balance of the crew left aboard the Nippon, as we considered their lives in danger and the ship a of record, p. 327). "(P. 334.)
wreck, with little hope of saving her. Q. When the Manchuria visited the scene of the wreck on May 13, how many of you went on
board?
(Signed.)
A. We all went on board.
Q. By 'all' you mean yourself, passenger, and all the members of the crew that remained?
F. Carman A.G. Erickson
A. Yes.
Q. What did you take with you?
G.E. Johansson F. Palm
A. Just personal luggage, not all, what you could carry in a small boat, it could not be very much
considering that the boat was broken and there were 27 men, the ship's chronometer and ship's
W. Bratt J. Karlberg
papers.
Q. What do you mean by `ship's papers'?
B. Nyolram E. Thulin
A. Register, articles.
E. Petterson Q. Did you take the ship's log?
A. Yes; that is the first thing I take.
On May 16, 1913, Captain Anderson of the Coast Guard cutter Mindoro made the following report to the Q. That is the first thing you take under what circumstances?
Director of Navigation. A. Under any circumstances of accidents to the ship; because it is the official record up to the time
S.S. Mindoro an accident happens.
Manila, P.I., May 16, 1913 Q. Do you mean to state, captain, that in the event of any accident to a ship, no matter how slight,
that the ship's log and register and articles are taken ashore?
Sir A. The ship's log on any occasion has to be brought before the Swedish Consul.
I have the honor to make he following report of voyage made to Scarborough Reef, May 12 to 14, Q. How about the register and articles?
1913 for officers and crew of S.S. Nippon. A. Of course not.
May 13, 1913, being 2 1/2 miles sought of reef, I observed S. S. Nippon stranded on the N. E. edge of Q. Under what circumstances do you take ashore the ship's articles and register?
reef. I immediately steered northward around the western edge of reef and arrived of stranded ship A. When I leave the ship myself I have, of course, to take those papers with me.
 Q. Every time you leave the ship? (P. 353.) Q. Why did they want to get to shore?
A. No. Every time when I leave it stranded as she was. If I go on shore and try to get means for A. They wanted to save their lives. We didn't know the weather in the China Sea. We could have
taking my ship off the ground, I have to prove what ship it is and all that. In the meantime a gale may expected a typhoon in a couple of days and very likely the ship would have gone into the sea.
come up and the ship be torn off the rock and destroyed and the papers lost." Captain Eggert sent the following cablegram to the owners of the Nippon , after reaching Hongkong
(P. 336.) Q. What were the conditions prevailing aboard the ship from the time that she stranded on May 14, 1913:
until theManchuria arrived? (P. 360.) Nippon wrecked during typhoon eight May Scarborough Shoal latitude 15 longitude 118
A. The first night there was very bad sea and high wind. The ship was came so much better than probably total wreck bottom seriously damaged ship full of water chief officer and nine men took to
we could send the boat off about 11 o'clock in the forenoon by using precautions, oil, etc. The third boat for rescue landed twelfth Luzon mailsteamer Manchuria saved captain and remaining crew
and fourth day the weather was fine. morning thirteenth. Arrived Hongkong tonight. Wreck on edge of reef, will probably slip off and sink
(P. 337.) Q. And do you now admit that you were mighty glad to get off the Nippon ? by first gale captain arranging to visit wreck and attempt salvage.
A. We were all mighty glad.
EGGERT.
Q. Why were you mighty glad?
A. Chiefly because the crew had insisted on leaving the ship in some way, by building rafts, or in
Captain Eggert did not make any determined effort to arrange for the salvage of the Nippon, as will be seen
that boat of ours. And secondly because of the uncertainty. We did not know if our boat had reached
from the testimony.
shore. The scene of the accident was quite out of the track of any vessel, so it was quite natural when
(P. 330. Captain Eggert testifying).
we saw that ship coming up we were glad to get into communication with the outside world.
Q. What did you do upon your arrival in Hongkong?
Q. You say that the crew had insisted on leaving the ship?
A. The first thing I did it was about 5 o'clock in the afternoon I went to the office of our
A. They were not insisting on it because they can not insist against the master of a ship. But they
agents my owners' agents. It was then close up so I had to proceed to the private residence of the
would like to get off.
manager. From there I dispatched a telegram to the owners.
Q. Why were they discussing the question?
xxx xxx xxx
A. Because they considered it better to leave the ship and reach land rather than stay on the ship,
Q. What date was this telegram sent?
not knowing if the boat had reached land or not.
A. On the evening of the 14th.
Q. They considered it better for what purpose?
Q. Of what month?
A. Being safe.
A. Of May.
Q. You mean better from the standpoint of safety of their life and limb?
Q. Did you enter into any negotiations with persons or firms?
A. Yes. To their lives.
A. Yes. The first thing in the morning of the 15th I visited together with the Swedish Consul the
(P. 343.) Q. Captain, if your purpose in leaving the Nippon was to go to Hongkong for the purpose of
Tykoo dockyard people, the Hongkong dockyard people, and went to the Mitsui Bussan Kaisha
arranging for her salvage, why did you not leave some of the crew on board?
branch office, and those people sent a wire to their home office in Nagasaki.
A. How could I leave some of the crew on board when there was no attendant? There could be a
Q. What, if anything, interrupted your negotiations with the firms and persons in Hongkong
gale at any time and the ship would have slipped off and broken to pieces. I first of all was
relative to the salvage of the Nippon and her cargo?
responsible for their lives."
A. A wire from my owners.
(P. 348.) Q. (By Mr. Rohde.) Captain, did you or did you not leave the Nippon , with the intention of
xxx xxx xxx
returning and the hope of recovering your ship and cargo?
Q. When was this telegram received by you, Captain?
A. I left the Nippon with the full intention of returning to the ship and try to recover her, and I
A. On the 17th.
discussed that matter during the three days we were on the reef with every member I could see in
Q. What did you do then?
the crew, and with the passenger. Everybody knew as soon as I put my foot on the Manchuria it was
A. I tried to find out when the next steamer was leaving for Manila and there was none leaving
for the purpose of getting assistance. Captain Dixon knew, his officers knew it, and his crew knew it.
before the 20th, the steamer I took and proceeded here.
(Mr. Cohn.) You have not fully replied to the question asked you by counsel for the defendant, which
From the above it will be seen that Capt. Eggert had over two days in which to arrange for salvage operations
is whether you had the hope of recovering the ship.
and he did nothing, while the plaintiffs, who were strangers and had no interest, sent out a salvage expedition
A. I had hope if the weather continued fine.
in twenty-four hours after they discovered that the ship was wrecked.
(Mr. Cohn.) If you had that hope why didn't you leave some of your crew on board?
The evidence proves that the Nippon was in peril; that the captain left in order to protect his life and the lives
A. Because the hope would not justify me leaving any of the crew on the ship.
of the crew; that the animo revertendi was slight. The argument of the defendant-appellant to the effect that
(Mr. Cohn.) Your hope was so slight it did not warrant your leaving anybody on board?
the ship was in no danger is a bit out of place in view of the statement of the captain that she would sink with
A. A hope is always slight. I mean to say your hope will never justify you to risk another man's life,
the first gale, coupled with the fact that a typhoon was the cause of her stranding.
even if you have a very good foundation for your hope. Life comes before property.
The Federal Courts have, a number of times, had presented to them cases in which the facts were very similar
(Mr. Cohn.) Just what do you mean by "hope"?
to the facts in the present case. The claim for salvage was allowed in each of these cases. In The Bee (Fed. Cas.
A. I mean to say that if the weather continues fine there is no risk, but if there is a typhoon or gale
No. 1219; 3 Fed. Cas., 41), the facts were as follows: The Bee sailed from Boston to Nova Scotia. Three days
we will be worse off and the ship will be smashed and the crew perish. That is what I mean by a
after leaving port a gale was encountered which forced her to run into a cove on the north side of Grand Manan
"hope" in this occasion.
Island, where an anchor was let out. The ship was somewhat injured from the force of the storm. The master
(Mr. Cohn.) What you mean, Captain, is that you were going to Hongkong and if you could find some
and the crew stayed on board for 24 hours and then went ashore to procure assistance. The island was very
one that was willing to go out and look for your ship, and if your ship was still there, that you would
sparsely settled. They met on shore a number of men (the libelants) to whom they explained the predicament
undertake to salve her if you could.
and position of the ship. These men immediately went to the ship, boarded her, and took possession. After the
A. Of course.
master had been ashore about five hours he returned to the ship and found the libelants in possession. The
Chief Engineer Emil Gohde was asked why the crew wanted to get ashore.
owners contended that the master was excluded from the ship wrongfully and therefore the libelants could not
claim salvage. The court stated the law as follows (p. 44):
When a vessel is found at sea, deserted, and has been abandoned by the master and crew without the
intention of returning and resuming the possession, she is, in the sense of the law, derelict, and the
finder who takes the possession with the intention of saving her, gains a right of possession, which he
can maintain against the true owner. The owner does not, indeed, renounce his right of property.
This is not presumed to be his intention, nor does the finder acquire any such right. But the owner
does abandon temporarily his right of possession, which is transferred to the finder, who becomes
bound to preserve the property with good faith, and bring it to a place of safety for the owner's use;
and he acquired a right to be paid for his services a reasonable and proper compensation, out of the
property itself. He is not bound to part with the possession until this is paid, or it is taken into the
custody of the law, preparatory to the amount of salvage being legally ascertained. Should be salvors
meet with the owner after an abandonment, and he should tender his assistance in saving and
securing the property, surely this ought not, without good reasons, to be refused, as this would be no
bar to the right of salvage, and should it be unreasonably rejected it might affect the judgment of a
court materially, as to the amount proper to be allowed. Still, as I understand the law, the right of
possession is in the salvor. But when the owner, or the master and crew who represent him, leave a
vessel temporarily, without any intention of a final abandonment, but with the intent to return and
resume the possession, she is not considered as a legal derelict, nor is the right of possession lost by
such temporary absence for the purpose of obtaining assistance, although no individual may be
remaining on board for the purpose of retaining the possession. Property is not, in the sense of the
law, derelict and the possession left vacant for the finder, until the spes recuperandi is gone, and
the animus revertendi is finally given up. (The Aquila, 1 C. Rob. Adm., 41.) But when a man finds
property thus temporarily left to the mercy of the elements, whether from necessity or any other
cause, though not finally abandoned and legally derelict, and he takes possession of it with the bona
fide intention of saving it for the owner, he will not be treated as a trespasser. On the contrary, if by
his exertions he contributes materially to the preservation of the property, he will entitle himself to a
remuneration according to the merits of his service as a salvor.
The court allowed salvage in this case. They held that the master had taken insufficient precautions to protect
his vessel and although the ship was not a legal derelict, the libelants were salvors and entitled to salvage.
In The John Gilpin (Fed. Cas. No. 7345; 13 Fed. Cas., 675) the ship John Gilpin, in attempting to leave New York
harbor in a winter storm, was driven ashore. The ship's crew sent for help and in the meantime put forth every
effort to get her off. Help arrived toward evening, but accomplished nothing. The master and crew went
ashore. The same night the libelants went out to the ship with equipment and started working. It was
contended that the master had gone ashore for assistance. He returned the next morning with a tug and some
men and demanded possession, which was refused. Salvage was allowed. The court said (p. 676):
The libelants, in the exercise of their calling as wreckers, coming to a vessel in that plight, would be
guilty of a dereliction of duty if they failed to employ all their means for the instantaneous
preservation of property so circumstanced. This may not be strictly and technically a case of derelict
(Clarke vs. The Dodge Healy, Case No. 2849), if really the master of the brig had gone to the city to
obtain the necessary help to save the cargo and brig, intending at the time, to return with all
practicable dispatch. It appears he came to the wreck by 8 or 9 a. m. the following day, in a steam-tug,
with men to assist in saving the cargo. The animus revertendi et recuperandi may thus far have
continued with the master, but this mental hope or purpose must be regarded inoperative and
unavailing as an actual occupancy of the vessel, or manifestation to others of a continuing possession.
She was absolutely deserted for 12 or 14 hours in a condition when her instant destruction was
menaced, and the lives of those who should attempt to remain by her would be considered in highest
jeopardy. She was quite derelict; and being thus found (The Boston, Case no. 1673; Rowe vs. The Brig,
Case no. 12093; 1 Sir Lionel Jenkins, 89) by the libelants, the possession they took of her was lawful.
(The Emulous, Case No. 4480.)
Possession being thus taken when the vessel was, in fact, abandoned and quite derelict, under peril of
instant destruction, the libelants had a right to retain it until the salvage was completed, and no other
person could interfere against them forcibly, provided they were able to effect the purpose, and were
conducting the business with fidelity and vigor.
In The Shawmut (155 Fed. Rep., 476) the court allowed salvage upon the following facts: The four-masted
schooner Myrtle Tunnel sailed from Brunswick bound for New York. The first day out a hurricane struck her
and tore the sails away and carried off the deck load. She was badly damaged and leaking. The master of
the Myrtle Tunnel requested towage by the steamship Mae to the port of Charleston. The Mae, on account of
her own damaged condition, was unable to tow but she took the master and crew of the Myrtle Tunnel off and
landed them at Charleston. The owners were notified and they started an expedition out in search. Before this
expedition reached her, the steamship Shawmut sighted the Myrtle Tunnel, and, finding that she was
abandoned and waterlogged, took her in two and succeeded in taking her to Charleston. The owners of
the Myrtle Tunnelcontended that she was not derelict, because the master had gone ashore to procure
assistance. With reference to this question, the court said (p. 478):
The first question that arises is whether the Myrtle Tunnel is a derelict. Prima facie a vessel found at
sea in a situation of peril, with no one aboard of her, is a derelict; but where the master and crew
leave such vessel temporarily, without any intention of final abandonment, for the purpose of
obtaining assistance, and with the intent to return and resume possession, she is not technically a
derelict. It is not of substantial importance to decide that question. She was what may be called a
quasi-derelict; abandoned, helpless, her sails gone, entirely without power in herself to save herself
from a situation not of imminent, but of considerable peril; lying about midway between the Gulf
Stream and the shore, and about 30 miles from either. An east wind would have driven her upon one,
and a west wind into the other, where she should have become a total loss. Lying in the pathway of
commence, with nothing aboard to indicate an intention to return and resume possession, it was a
highly meritorious act upon the part of the Shawmut to take possession of her, and the award must be
governed by the rules which govern in case of derelicts; the amount of it to be modified in some
degree in the interest of the owners in consideration of their prompt, intelligent, and praiseworthy
efforts to resume possession of her, wherein they incurred considerable expense.
The first of these cases was decided in 1836 and the last in 1907. The indicate that the abandonment of a
vessel by all on board, when the vessel is in peril, will justify third parties in taking possession with the bona
fide intention of saving the vessel and its cargo for its owners. The mental hope of the master and the crew will
in no way affect the possession nor the right to salvage. See also The Hyderabad (11 Fed. Rep., 749), The
Cairnsmore (20 Fed. Rep., 519), Pearce vs. The Ann L. Lockwood (37 Fed. Rep., 233).
This brings us to the second question raised by the assignments of error: (2) Was the salvage conducted with
skill, diligence, and efficiency? The court found:
While the plaintiff entered upon the salvage proceedings without proper means and not being
adapted by their business to conduct their work, and while it may appear that possibly the salvage
might have been conducted in a better manner and have accomplished somewhat better results in
the saving of the copra cargo, yet it appears that they quickly remedied their lack of means and
corrected the conduct of the work so that it accomplished fairly good results.
It does not appear from the evidence that anyone then or subsequently suggested or found any other
course which might have been pursued and which would have brought better results.
There was some dispute whether Manila or Hongkong should be used as a base for operations. Capt. Robinson,
who was the only one of the experts who had had any experience in handling wet copra, unqualifiedly
approved Manila as a base for operations. (P. 437, 3d part of record):
Q. Assuming that you had been asked to undertake the work of salving the steamer Nippon and
her cargo, please state whether you would have undertaken that work with the men and material
available in Manila, or whether you would have gone to Hongkong and used Hongkong men and
material and made Hongkong your base on operations.
A. Certainly not. I would have made Manila my base, which I always have done.
Lebreton, a stevedore, testified that he would have gotten some of his materials from Hongkong but that he
would have freighted the salved cargo to Manila. All other things being equal, the fact that Hongkong is forty
sailing hours from Scarborough Reef while Manila is less than twenty-four sailing hours would make Manila by
far the more logical base.
The plaintiffs sent men into the hold of the ship and sacked the copra and brought it to Manila where it was
sold. Some of the witnesses contended that other methods should have been used. They testified that "grabs"
or "claim shells" would have brought better results, but none of these witnesses had had any experience in
unloading wet copra. Capt. Robinson was the only witness called who had had any experience in this class of
work. He testified that the only way all the copra could be gotten out was by sacks or by canvas slights; that
"grabs" would be of no use because of the inability to work with them between decks. The copra was in three
layers. The top layer was dry, the middle layer was submerged every time the tide rose, and the lower layer
was submerged all of the time. It was manifestly impossible to keep these layers separate by using "grabs" or
"clam shells." The fact that wet copra is exceedingly difficult to handle, on account of the gases which arise
from it, is also of prime importance in weighing the testimony of defendant's witnesses, because none of them
had ever had experience with wet copra.
The plaintiffs commenced the actual work of salving the ship and cargo on May 18, 1913. The last of the cargo
was a brought to Manila the latter part of June. The last of the dry copra was brought to Manila on June 5. The
estimates of the experts with regard to the time necessary to remove the cargo ranged from eight to twenty
days. The greater portion of the cargo was brought in by the plaintiffs within fifteen days. The delay after June
5 was due to the difficulty in inducing laborers to work with wet copra. This difficulty would have arisen with
any set of salvors and cannot be attributed to a lack of care or diligence on the part of the plaintiffs.
The plaintiffs were diligent in commencing the work and were careful and efficient in its pursuit and
conclusion.
The third and last question is with regard to the amount of the award (3) Was the award justified?
Compensation as salvage is not viewed by the admiralty courts merely as pay on the principle
of quantum meruit or as a remuneration pro opere et labore, but as a reward given for perilous
services, voluntarily rendered, and as an inducement to mariners to embark in such dangerous
enterprises to save life and property. (The Mayflower vs. The Sabine, 101 U. S., 384.)
The plaintiff-appellant contends that the expenses incurred should be deducted from the entire amount of the
salved property and the remainder be divided as a reward for the services rendered. This contention has no
basis in the law of salvage compensation. The expenses incurred by the plaintiffs must be borne by them. It is
true that the award should be liberal enough to cover the expenses and give an extra amount as a reward for
the services rendered but the expenses are used in no other way as a basis for the final award. A part of the
risk that the plaintiffs incurred was that the goods salved would not pay them for the amount expended in
salving them. The plaintiffs knew this risk and they should not have spent more money than their reasonable
share of the proceeds would amount to under any circumstances.
In the case of The Carl Schurz (Case No. 2414; 5 Fed. Cas., 84) the actual expenditure by the libelant in salving
the vessel in question was $568.95. The ship when sold brought $792. The libelant wanted the court to first
deduct the expenses. The court refused to do this but decreed a moiety. The court said (p. 86):
A salvor, in the view of the maritime law, has an interest in the property; it is called a lien, but it never
goes, in the absence of a contract expressly made, upon the idea of a debt due by the owner to the
salvor for services rendered, as at common law, but upon the principle that the service creates a
property in the thing saved. He is, to all intents and purposes, a joint owner, and if the property is lost
he must bear his share like other joint owners.
This is the governing principle here. The libelant and the owners must mutually bear their respective
share of the loss in value by the sale. If the libelant has been unfortunate and has spent his time and
money in saving a property not worth the expenditure he made, or if, having saved enough to
compensate him, it is lost by the uncertainties of a judicial sale for partition, so to speak, it is a
misfortune not uncommon to all who seek gain by adventurous speculations in values. The libelant
says in his testimony that he relied entirely on his rights as a salvor. This being so he knew the risk he
ran and it was his own folly to expend more money in the service than his reasonable share would
have been worth under all circumstances and contingencies. He can rely neither on the common law
idea of an implied contract to pay for work on and about one's property what the work is reasonably
worth with alien attached by possession for satisfaction, nor upon any notion of an implied maritime
contract for the service, with a maritime lien to secure it, as in the case of repairs, or supplies
furnished a needy vessel, or the like. In such a case the owner would lose all if the property did not
satisfy the debt, when fairly sold. But this doctrine has no place in the maritime law of salvage. It does
not proceed upon any theory of an implied obligation, either of the owner or the res, to pay
a quantum meruit, nor actual expenses incurred, but rather on that of a reasonable compensation or
reward, as the case may be, to one who has rescued the res from danger of total loss. If he gets the
whole, the property had as well been lost entirely, so far as the owner is concerned. (Smith vs. The
Joseph Stewart, Fed. Cas. No. 13070.) I think the public policy of encouragement for such service does
not, of itself, furnish sufficient support for a rule which would exclude the owner from all benefit to
be derived from the service.
In Williams vs. The Adolphe (Fed. Cas. No. 17712; 29 Fed. Cas., 1350) the court said (p. 1353):
The claim of the libelants is for salvage, the services rendered were salvage services and the owners
are to receive their property again, after paying salvage for the services rendered them. What service
would it be to them to take their property under circumstances calling for the whole of it by way of
indemnity? The mistake of the captain and the supercargo, and part owner of the Triton as to the
value of the property on board the Adolphe, should not operate to the injury of the owners thereof;
the salvors must bear the consequences of their own mistake, taking such a proportion only of the
property salved, as by the law of the admiralty should be awarded them.
In The Edwards (12 Fed. Rep., 508, 509), the court said:
It is true that in rendering a salvage service the salvor assumes the risks of failure, and his salvage
depends upon his success and the amount of property saved; yet when there is enough to fully
compensate him for time and labor, and leave a reasonable proportion for the owner, he should
certainly be awarded that, if the amount will allow no more.
In The L. W. Perry (71 Fed. Rep., 745, 746), the court said:
Without regard to the element of reward which is intended by the salvage allowance, it is manifest
that remuneration pro opere et labore would be placed in excess of the fund here, if such basis were
allowable. Therefore, it is contended on behalf of the libelant that the entire sum remaining should be
awarded for the salvage service;. . . .
While salvage is of the nature of a reward of meritorious service, and for determination of its amount
the interests of the public and the encouragement of others to undertake like service are taken into
consideration, as well as the risk incurred, and the value of the property saved, and where the
proceeds for division are small, the proportion of allowance to the salvor may be enlarged to answer
these purposes, nevertheless, the doctrine of salvage requires, as a prerequisite to any allowance,
that the service `must be productive of some benefit to the owners of the property salved; for,
however meritorious the exertions of alleged salvors may be, if they are not attended with benefit to
the owners, they can not be compensated as such.' (Abb. Shipp. [London Ed., 1892], 722.) The claim
of the libelant can only be supported as one for salvage. It does not constitute a personal demand,
upon quantum meruit, against the owners, but gives an interest in the property saved, which entitles
the salvor to a liberal share of the proceeds. . . .
(P. 747.) One of the grounds for liberality in salvage awards is the risk assumed by the salvor, that
he can have no recompense for service or expense unless he is successful in the rescue of property,
and that his reward must be within the measure of his success. He obtains an interest in the property,
and in its proceeds when sold, but accompanied by the same risk of any misfortune or depreciation
which may occur to reduce its value. In other words, he can only have a portion, in any event; and the
fact that his exertions were meritorious and that their actual value, or the expense actually incurred,
exceeded the amount produced by the service, cannot operate to absorb the entire proceeds against
the established rules of salvage. (The Carl Schurz, Fed. Cas. No. 2414).
The plaintiff-appellants contends that the award of the lower court of one-half is the established rule in cases
of derelicts and should not be disturbed. It is well established now that the courts have a wide discretion in
settling the award. The award is now determined by the particular facts and the degree of merit. In The Job H.
Jackson(161 Fed. Rep., 1015, 1018), the court said:
There is no fixed rule for salvage allowance. The old rule in cases of a derelict was 50 per cent of the
property salved; but under modern decisions and practice, it may be less, or it may be more. The
allowance rests in the sound discretion of the court or judge, who hears the case, hears the witnesses
testify, looks into their eyes, and is acquainted with the environments of the rescue. . . . An allowance
for salvage should not be weighed in golden scales, but should be made as a reward for meritorious
voluntary services, rendered at a time when danger of loss is imminent, as a reward for such services
so rendered, and for the purpose of encouraging others in like services.
In The Lamington (86 Fed. Rep., 675, 678), the court said:
While it appears most clearly that, since the old hard and fast rule of `50 per cent of a derelict' was
abandoned, the award is determined by a consideration of the peculiar facts of each case, it is none
the less true that the admiralty courts have always been careful not only to encourage salving
 enterprises by liberality, when possible, but also to recognize the fact that it is, after all, a speculation
in which desert and reward will not always balance.
The award is largely in the discretion of the trial court and it is rare that the appellate court will disturb the
findings.
Appellate courts rarely reduce salvage awards, unless there has been some violation of just
principles, or some clear or palpable mistake. They are reluctant to disturb such award, solely on the
ground that the subordinate court gave too large a sum, unless they are clearly satisfied that the
court below made an exorbitant estimate of the services. It is equally true that, when the law gives a
party a right to appeal, he has the right to demand the conscientious judgment of the appellate court
on every question arising in the case, and the allowance of salvage originally decreased has, in many
cases, been increased or diminished in the appellate court, even where it did not violate any of the
just principles which should regulate the subject, but was unreasonably excessive or inadequate.
(Post vs. Jones, 19 How., 161). Although the amount to be awarded as salvage rests, as it is said, in the
discretion of the court awarding it, appellate courts will look to see if that discretion has been
exercised by the court of first instance in the spirit of those decisions which higher tribunals have
recognized and enforced, and will readjust the amount if the decree below does not follow in the path
of authority, even though no principle has been violated or mistake made.
The property of the defendant-appellants which was salved was forced to pay the same proportion of the
award without distinction. The day copra and the agar-agar was salved with much more ease than the wet
copra. The courts have, almost universally, made a distinction in this regard. In The America (1 Fed. Cas., 596),
decided in 1836, the award was as follows: 25 per cent on cargo salved dry; 50 per cent on cargo salved
damaged; 60 per cent on cargo salved by diving.
In The Ajax (1 Fed. Cas., 252(, decided in 1836, the award was as follows: 33 per cent on the dry; 50 per cent on
the wet; 50 per cent on ship's materials. In The Nathaniel Kimball (Fed. Cas. No. 10033), decided in 1853, the
award was as follows: 30 per cent on dry cargo; 50 per cent on wet, salved by diving and working under water.
In The Brewster (Fed. Cas. No. 1852), decided in 1848, the award was as follows: 33 per cent, and as to some
cargo where diving was necessary, 60 per cent.
In The Mulhouse (Fed. Cas. No. 9910), decided in 1859, the award was as follows: 25 per cent salving dry deck
cotton; 45 per cent salving cotton submerged between decks; 55 per cent salving cotton by diving.
In The John Wesley (Fed. Cas. No. 7433), decided in 1866, the award was as follows: 15 per cent; on damaged
cotton a slightly higher per cent.
In The Northwester (Fed. Cas. No. 10333), decided in 1873, the award was as follows: 20 per cent on cotton
dry; 33 1/3 per cent on cotton wet and burnt; 40 per cent on materials; 50 per cent on property salved by
diving.
In Baker vs. Cargo etc. of The Slobodna (35 Fed. Rep., 537), decided in 1887, the award was as follows: 25 per
cent on dry cotton; 33 1/3 per cent on wet cotton; 45 per cent on materials.
In the cases in which the full award of 50 per cent was allowed the court usually made the comment: "services
highly meritorious," "meritorious service," "with great labor and difficulty," or similar remarks.
In the salvage operations conducted by the plaintiff, the following property was involved:
First, the steamship Nippon , valued at P250,000.00
No appeal was taken from the judgment of the lower court concerning the amount of salvage allowed by it for
the general cargo, the camphor, nor the curios salved.
The only question raised by the appellants is as to the amount of salvage which should be awarded to the
plaintiff-appellants for the copra and the agar-agar. After a careful study of the entire record and taking into
account the amount which the plaintiffs has heretofore received, we have arrived at the conclusion that in
equity and justice the plaintiff-appellants should receive for their services the following amounts:
(a) 40 per cent of the net value of the wet copra salved.
(b) 25 per cent of the net value of the dry copra salved.
(c) 20 per cent of the net value of the agar-agar salved.
The net value of the wet copra salved amounted to P40,381.94; 40 per cent of that amount would be
P16,152.78. The net value of the dry copra salved amounted to P102,272.11; 25 per cent of that amount would
be P25,568.77.
In ascertaining the net value of the copra salved, the expenses incurred by the Collector of Customs in the sale
of the copra, amounting to P4,080.01, has been deducted from the total amount of the copra salved in the
proportion of 2.5 to 1. Dividing the expense in that proportion we have deducted from the amount of the dry
copra salved the sum of P2,914.39, and from the amount of the wet copra salved, the sum of P1,165.62.
The net value of the agar-agar salved amounted to P5,636; 20 per cent of that amount would be P1,127.
In view of all of the foregoing, it is hereby ordered and decreed that the judgment of the lower court be
modified, and that a judgment be entered against the defendant-appellants and in favor of the plaintiff-
appellant, as follows: First, it is hereby ordered and decreed that a judgment be entered against the defendant,
the Oelwerke Teutonia, and in favor of the plaintiff in the sum of P41,721.55. Second, it is further ordered and
decreed that a judgment be entered against the defendant, the New Zealand Insurance Company (Ltd.), and in
favor of the plaintiff, in the sum of P1,127. Third, it is further ordered and decreed that the amount of the
judgment hereinbefore rendered in favor of the plaintiff be paid out of the money which is now under the
control of the Court of First Instance of the city of Manila. And without any finding as to costs, it is so ordered.
Arellano, C.J., Torres, Johnson, Carson, and Trent, JJ.

Second, copra, net value, salved 142,657.05

Third, agar-agar, net value, salved 5,635.00

Fourth, general cargo 5,939.68

Fifth, camphor, net value, salved 1,850.00

Sixth, curios, net value, salved 150.00

The plaintiff and the owners of the ship have heretofore, by mutual agreement, settled the question of the
amount of salvage of the ship. The plaintiff received for that part of their services the sum of L15,000 or about
P145,800.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17192 March 30, 1963
HONORIO M. BARRIOS, plaintiff-appellant,
vs.
CARLOS A. GO THONG & COMPANY, defendant-appellee.
Laput & Jardiel for plaintiff-appellant.
Quisumbing & Quisumbing for defendant-appellee.
BARRERA, J.:
From the decision of the Court of First Instance of Manila (in Civil Case No. 37219) dismissing with costs his
case against defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios, interposed the present appeal.
The facts of the case, as found by the trial court, are briefly stated in its decision, to wit:
The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of the
William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other southern cities
and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about 8:00 o'clock on the
evening of May 1, 1958, plaintiff in his capacity as such captain and/or master of the aforesaid MV Henry I,
received or otherwise intercepted an S.O.S. or distress signal by blinkers from the MV Don Alfredo, owned
and/or operated by the defendant Carlos A. Go Thong & Company. Acting on and/or answering the S.O.S. call,
the plaintiff Honorio M. Barrios, also in his capacity as captain and/or master of the MV Henry I, which was
then sailing or navigating from Dumaguete City, altered the course of said vessel, and steered and headed
towards the beckoning MV Don Alfredo, which plaintiff found to be in trouble, due to engine failure and the
loss of her propeller, for which reason, it was drifting slowly southward from Negros Island towards Borneo in
the open China Sea, at the mercy of a moderate easterly wind. At about 8:25 p.m. on the same day, May 1, 1958,
the MV Henry I, under the command of the plaintiff, succeeded in getting near the MV Don Alfredo in fact as
near as about seven meters from the latter ship and with the consent and knowledge of the captain and/or
master of the MV Don Alfredo, the plaintiff caused the latter vessel to be tied to, or well-secured and connected
with two lines from the MV Henry I; and in that manner, position and situation, the latter had the MV Don
Alfredo in tow and proceeded towards the direction of Dumaguete City, as evidenced by a written certificate to
this effect executed and accomplished by the Master, the Chief Engineer, the Chief Officer, and the Second
Engineer, of the MV Don Alfredo, who were then on board the latter ship at the time of the occurrence stated
above (Exh. A). At about 5:10 o'clock the following morning, May 2, 1958, or after almost nine hours during the
night, with the MV Don Alfredo still in tow by the MV Henry I, and while both vessels were approaching the
vicinity of Apo Islands off Zamboanga town, Negros Oriental, the MV Lux, a sister ship of the MV Don Alfredo,
was sighted heading towards the direction of the aforesaid two vessels, reaching then fifteen minutes later, or
at about 5:25 o'clock on that same morning. Thereupon, at the request and instance of the captain and/or
master of the MV Don Alfredo, the plaintiff caused the tow lines to be released, thereby also releasing the MV
Don Alfredo.
These are the main facts of the present case as to which plaintiff and defendant quite agree with each other. As
was manifested in its memorandum presented in this case on August 22, 1958, defendant thru counsel said
that there is, indeed, between the parties, no dispute as to the factual circumstances, but counsel adds that
where plaintiff concludes that they establish an impending sea peril from which salvage of a ship worth more
than P100,000.00, plus life and cargo was done, the defendant insists that the facts made out no such case, but
that what merely happened was only mere towage from which plaintiff cannot claim any compensation or
remuneration independently of the shipping company that owned the vessel commanded by him.
On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating:
Plaintiff bases his claim upon the provisions of the Salvage Law, Act No. 2616, .....
In accordance with the Salvage Law, a ship which is lost or abandoned at sea is considered a derelict
and, therefore, proper subject of salvage. A ship in a desperate condition, where persons on board are
incapable, by reason of their mental and physical condition, of doing anything for their own safety, is
a quasi-derelict and may, likewise, be the proper subject of salvage. Was the MV Don Alfredo, on May
1, 1958, when her engine failed and, for that reason, was left drifting without power on the high seas,
a derelict or a quasi-derelict? In other words, was it a ship that was lost or abandoned, or in a
desperate condition, which could not be saved by reason of incapacity or incapacity of its crew or the
persons on board thereof? From all appearances and from the evidence extant in the records, there
can be no doubt, for it seems clear enough, that the MV Don Alfredo was not a lost ship, nor was it
abandoned. Can it be said that the said ship was in a desperate condition, simply because S.O.S.
signals were sent from it?.
From the testimony of the captain of the MV Don Alfredo, the engine failed and the ship already lost
power as early as 8:00 o'clock on the morning of May 1, 1958; although it was helpless, in the sense
that it could not move, it did not drift too far from the place where it was, at the time it had an engine
failure. The weather was fair in fact, as described by witnesses, the weather was clear and good.
The waves were small, too slight there were only ripples on the sea, and the sea was quite smooth.
And, during the night, while towing was going on, there was a moonlight. Inasmuch as the MV Don
Alfredo was drifting towards the open sea, there was no danger of floundering. As testified to by one
of the witnesses, it would take days or even weeks before the ship could as much as approach an
island. And, even then, upon the least indication, the anchor could always be weighed down, in order
to prevent the ship from striking against the rocks.
"There was no danger of the vessel capsizing, in view of the fairness of the sea, and the condition of
the weather, as described above. As a matter of fact, although the MV Don Alfredo had a motor
launch, and two lifeboats, there was no attempt, much less, was there occasion or necessity, to lower
anyone or all of them, in order to evacuate the persons on board; nor did the conditions then
obtaining require an order to jettison the cargo.
But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from aboard the MV Don
Alfredo, which was enough to establish the fact that it was exposed to imminent peril at sea. It is
admitted by the defendant that such S.O.S. signal was, in fact, sent by blinkers. However, defendant's
evidence shows that Captain Loresto of the MV Don Alfredo, did not authorize the radio operator of
the aforesaid ship to send an S.O.S. or distress signal, for the ship was never in distress, nor was it
exposed to a great imminent peril of the sea. What the aforesaid Captain told the radio operator to
transmit was a general call; for, at any rate, message had been sent to defendant's office at Cebu City,
which the latter had acknowledged, by sending back a reply stating that help was on the way.
However, as explained by the said radio operator, in spite of his efforts to send a general call by radio,
he did not receive any response. For this reason, the Captain instructed him to send the general call
by blinkers from the deck of the ship; but the call by blinkers, which follows the dots and dashes
method of sending messages, could not be easily understood by deck officers who ordinarily are not
radio operators. Hence, the only way by which the attention of general officers on deck could be
called, was to send an S.O.S. signal which can be understood by all and sundry.
Be it as it may, the evidence further shows that when the two ships were already within hearing
distance (barely seven meters) of each other, there was a sustained conversation between Masters
and complement of the two vessels, by means of loud speakers and the radio; and, the plaintiff must
have learned of the exact nature and extent of the disability from which the MV Don Alfredo had
suffered that is, that the only trouble that the said vessel had developed was an engine failure, due
to the loss of its propellers..
It can thus be said that the MV Don Alfredo was not in a perilous condition wherein the members of
its crew would be incapable of doing anything to save passengers and cargo, and, for this reason, it
cannot be duly considered as a quasi-derelict; hence, it was not the proper subject of salvage, and the
Salvage Law, Act No. 2616, is not applicable.
Plaintiff, likewise, predicates his action upon the provisions of Article 2142 of the New Civil Code,
which reads as follows:
Certain lawful, voluntary and unilateral acts give to the juridical relation of quasi-contract
to the end that no one shall be unjustly enriched or benefited at the expense of another.
This does not find clear application to the case at bar, for the reason that it is not the William Lines,
Inc., owners of the MV Henry I which is claiming for damages or remuneration, because it has waived
all such claims, but the plaintiff herein is the Captain of the salvaging ship, who has not shown that, in
his voluntary act done towards and which benefited the MV Don Alfredo, he had been unduly
prejudiced by his employers, the said William Lines, Incorporated.
 What about equity? Does not equity permit plaintiff to recover for his services rendered and salvage services; and such reward should not be given if the services were held to be merely towage. (The
sacrifices made? In this jurisdiction, equity may only be taken into account when the circumstances Rebecca Shepherd, 148 F. 731.)
warrant its application, and in the absence of any provision of law governing the matter under The master and members of the crew of a tug were not entitled to participate in payment by liberty ship for
litigation. That is not so in the present case. services rendered by tug which were towage services and not salvage services. (Sause, et al. v. United States, et
In view of the foregoing, judgment is hereby rendered dismissing the case with costs against the al., supra.)
plaintiff; and inasmuch as the plaintiff has not been found to have brought the case maliciously, the "The distinction between salvage and towage is of importance to the crew of the salvaging ship, for the
counterclaim of the defendant is, likewise, dismissed, without pronouncement as to costs. following reasons: If the contract for towage is in fact towage, then the crew does not have any interest or
SO ORDERED. rights in the remuneration pursuant to the contract. But if the owners of the respective vessels are of a salvage
The main issue to be resolved in this appeal is, whether under the facts of the case, the service rendered by nature, the crew of the salvaging ship is entitled to salvage, and can look to the salvaged vessel for its share. (I
plaintiff to defendant constituted "salvage" or "towage", and if so, whether plaintiff may recover from Norris, The Law of Seamen, Sec. 222.)
defendant compensation for such service. And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation for the
The pertinent provision of the Salvage Law (Act No. 2616), provides: towage service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon and not
SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall separate from the interest of his employer, is not entitled to payment for such towage service.
have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be Neither may plaintiff invoke equity in support of his claim for compensation against defendant. There being an
entitled to a reward for the salvage. express provision of law (Art. 2142, Civil Code) applicable to the relationship created in this case, that is, that
Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, of a quasi-contract of towage where the crew is not entitled to compensation separate from that of the vessel,
shall be entitled to a like reward. there is no occasion to resort to equitable considerations.
According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be entitled to WHEREFORE, finding no reversible error in the decision of the court a quo appealed from, the same is hereby
a reward (salvage). "Salvage" has been defined as "the compensation allowed to persons by whose assistance a affirmed in all respects, with costs against the plaintiff-appellant. So ordered.
ship or her cargo has been saved, in whole or in part, from impending peril on the sea, or in recovering such Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal,
property from actual loss, as in case of shipwreck, derelict, or recapture." (Blackwall v. Saucelito Tug Company, JJ., concur.
10 Wall. 1, 12, cited in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178.) In the Erlanger &
Galingercase, it was held that three elements are necessary to a valid salvage claim, namely, (1) a marine peril,
(2) service voluntarily rendered when not required as an existing duty or from a special contract, and (3)
success in whole or in part, or that the service rendered contributed to such success.1
Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant? Like
the trial court, we do not think there was. It appears that although the defendant's vessel in question was, on
the night of May 1, 1958, in a helpless condition due to engine failure, it did not drift too far from the place
where it was. As found by the court a quo the weather was fair, clear, and good. The waves were small and too
slight, so much so, that there were only ripples on the sea, which was quite smooth. During the towing of the
vessel on the same night, there was moonlight. Although said vessel was drifting towards the open sea, there
was no danger of it floundering or being stranded, as it was far from any island or rocks. In case of danger of
stranding, its anchor could released, to prevent such occurrence. There was no danger that defendant's vessel
would sink, in view of the smoothness of the sea and the fairness of the weather. That there was absence of
danger is shown by the fact that said vessel or its crew did not even find it necessary to lower its launch and
two motor boats, in order to evacuate its passengers aboard. Neither did they find occasion to jettison the
vessel's cargo as a safety measure. Neither the passengers nor the cargo were in danger of perishing. All that
the vessel's crew members could not do was to move the vessel on its own power. That did not make the
vessel a quasi-derelict, considering that even before the appellant extended the help to the distressed ship, a
sister vessel was known to be on its way to succor it.
If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law, can it be
considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer seems to
incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant (through the captain
of its vessel MV Don Alfredo) thereby impliedly entered into a juridical relation of "towage" with the owner of
the vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated.
Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its
engine speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and
stood by while ship proceeded to dock under own power, was entitled, in absence of written
agreement as to amount to be paid for services, to payment for towage services, and not for salvage
services. (Sause, et al. v. United States, et al., 107 F. Supp. 489)
If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to the
exclusion of the crew of the said vessel, may be entitled to remuneration.
It often becomes material too, for courts to draw a distinct line between salvage and towage, for the reason
that a reward ought sometimes to be given to the crew of the salvage vessel and to other participants in
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6517 November 29, 1954
E. E. ELSER, INC., and ATLANTIC MUTUAL INSURANCE COMPANY, petitioners,
vs.
COURT OF APPEALS, INTERNATIONAL HARVESTER COMPANY OF THE PHILIPPINES and ISTHMIAN
STEAMSHIP COMPANY, respondents.
Gibbs and Chuidian for petitioners.
J. A. Wolfson for respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of Appeals which affirms that of court as origin
dismissing the complaint without pronouncement as to costs..
The facts, as found by the Court of Appeals, are:.
It appears that in the month of December, 1945 the goods specified in the Bill of Lading marked as
Annex A, were shipped on the 'S.S. Sea Hydra,' of Isthmian Steamship Company, from New York to
Manila, and were received by the consignee 'Udharam Bazar and Co.', except one case of vanishing
cream valued at P159.78. The goods were insured against damage or loss by the 'Atlantic Mutual
Insurance Co.' `Udharam Bazar and Co.' Inc., who denied having received the goods for custody, and
the 'International Harvester Co. of the Philippines,' as agent for the shipping company, who answer
that the goods were landed and delivered to the Customs authorities. Finally, 'Udaharam Bazar and
Co.' claimed for indemnity of the loss from the insurer, 'Atlantic Mutual Insurance Co.', and was paid
by the latter's agent 'E. E. Elser Inc.' the amount involved, that is, P159.78..
As may be noted, the Court of Appeals held that petitioners have already lost their right to press their claim
against respondent because of their failure to serve notice thereof upon the carrier within 30 days after receipt
of the notice of loss or damage as required by clause 18 of the bill of lading which was issued concerning the
shipment of the merchandise which had allegedly disappeared. In this respect, the court said that, "appellant
unwittingly admitted that they were late in claiming the indemnity for the loss of the case of the vanishing
cream as their written claim was made on April 25, 1946, or more than 30 days after they had been fully aware
of said loss," and because of this failure, the Court said the action of petitioners should, and must, fall.
Petitioners now contend that this finding is erroneous in the light of the provisions of the Carriage of Goods by
Sea Act of 1936, which apply to this case, the same having been made an integral part of the covenants agreed
upon in the bill of lading.
There is merit in this contention. If this case were to be governed by clause 18 of the bill of lading regardless of
the provisions of the Carriage of Goods by Sea Act of 1936, the conclusion reached by the Court of Appeals
would indeed the correct, but in our opinion this Act cannot be ignored or disregard in determining the
equities of the parties it appearing that the same was made an integral part of the bill of lading by express
stipulation. It should be noted, in this connection, that the Carriage of Goods by Sea Act of 1936 was accepted
and adopted by our government by the enactment of Commonwealth Act No. 65 making said Act "applicable to
all contracts for the carriage in foreign trade." And the pertinent provisions of the Carriage of the Goods by Sea
Act of 1936 are:
6. Unless notice of loss or damage and the general nature of such loss or damage be given in writing
to the carrier of his agent at the port of discharge or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of carriage, such removal shall
be prima facieevidence of the delivery by the carrier of the goods as described in the bill of lading. If
the loss or damage is not apparent, the notice must be given within three days of the delivery.
xxx xxx xxx
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should
have been delivered: PROVIDED, That if a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or the date when the goods should have been
delivered. (Section 3; Emphasis supplied.).
It would therefore appear from the above that a carrier can only be discharged from liability in respect of loss
or damage if the suit is not brought within one year after the delivery of the goods or the date when the goods
should have been delivered, and that, even if a notice of loss or damage is not given as required, "that fact shall
not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods." In
other words, regardless of whether the notice of loss or damage has been given, the shipper can still bring an
action to recover said loss or damage within one year after the delivery of the goods, and, as we have stated
above, this is contrary to the provisions of clause 18 of the bill of lading. The question that now rises is: Which
of these two provisions should prevail? Is it that contained in clause 18 of the bill of lading, or that appearing in
the Carriage of Goods by Sea Act?.
The answer is not difficult to surmise. That clause 18 must of necessity yields to the provisions of the Carriage
of Goods by Sea Act in view of the proviso contained in the same Act which says: "any clause, covenant, or
agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to or in
connection with the goods . . . or lessening such liability otherwise than as provided in this Act, shall be null
and void and of no effect." (section 3.) This means that a carrier cannot limit its liability in a manner contrary
to what is provided for in said act. and so clause 18 of the bill of lading must of necessity be null and void. This
interpretation finds no support in a number of cases recently decided by the American courts. Thus, in Balfour,
Guthrie and Co., Ltd., et al., vs. American-West African Line, Inc. and American-West African Line, Inc. vs.
Balfour, Guthrie & Co., Ltd., et al., 136 F. 2d. 320, wherein the bill of lading provided that the owner should not
be liable for loss of cargo unless written notice thereof was given within 30 days after the goods should have
been delivered and unless written claim therefor was given within six months after giving such written notice,
the United States Circuit Court of Appeals, Second Circuit, in a decision promulgated on August 2, 1943, made
the following ruling:.
But the Act, section 3 (6), 45 U.S.A. section 1303 (6) provides that failure to give 'notice of loss or
damages' shall not prejudice the right of the shipper to bring suit within one year after the date when
the goods should have been delivered. to enforce a bill of lading provision conditioning a ship
owner's liability upon the filing of written claim of loss, which in turn requires and depends upon the
filing of a prior notice of loss, certainly would do violence to section 3(6) is that failure to file written
claim of loss in no event may prejudice right of suit within a year of the scheduled date for cargo
delivery. This is also to be concluded from section 3(8) 46 U.S. C. A. Section 1303 (8),that any clause
in a bill of lading lessening the liability of the carrier otherwise than as provided in the Act shall be
null and void. A similar provision in the British Carriage of Goods by Sea Act, 14 and 15 Geo. V. c.22,
has been interpreted to nullify any requirement of written claim as a condition to suit at any time. CF.
Australian United Steam Navigation Co., Ltd., vs. Hunt (1921) 2 A. C. 351; Conventry Sheppard and
Co., vs. Larrinaga S. S. Co., 73 ll. L. Rep. 256.1
But respondents contend that while the United States Carriage of Goods by Sea Act of 1936 was accepted and
adopted by our government by virtue of Commonwealth Act No. 65, however, said Act does not have any
application to the present case because the shipment in question was made in December, 1945, and arrived in
Manila in February, 1946 and at that time the Philippines was still a territory or possession of the United
States and, therefore it may be said that the trade then between the Philippines and the United States was not a
"foreign trade". In other words, it is contended that the Carriage of Goods by Sea Act as adopted by our
government is only applicable "to all contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade," and, therefore, it does not apply to the shipment in question..
Granting arguendo that the Philippines was a territory or possession of the United States for the purposes of
said Act and that the trade between the Philippines and the United States before the advent of independence
was notforeign trade or can only be considered in a domestic sense, still we are of the opinion that the Carriage
of Goods by Sea Act of 1936 may have application to the present case it appearing that the parties have
expressly agreed to make and incorporate the provisions of said Act as integral part of their contract of
carriage. This is an exception to the rule regarding the applicability of said Act. This is expressly recognized by
section 13 of said Act which contains the following proviso:
Nothing in this Act shall be held to apply to contracts for carriage of gods by sea between any port of
the United States or its possessions, and any other port of the United States or its
possessions: Provided, however, That any bill of lading or similar document of title which evidence of
a contract for the carriage of goods by sea between such ports, containing an express statement that it
 shall be subject to the provisions of this Act, shall be subjected hereto as fully as if subject hereto by the
express provisions of this Act. (Emphasis supplied.).
This is also recognized by the very authority cited by counsel for respondents, who, on this matter, has made
the following comment:
The Philippine Act of 1936 like the U.S. Act of 1936, applies propio vigore only to foreign commerce to
all contracts for the carriage of goods by sea and from Philippine ports in foreign trade.
Prior to Philippine Independence on July 4, 1946, trade between the Philippines and other ports and
places under the American Flag, was not, by an ordinary definition, foreign commerce. Hence, the U.
S. and Philippine Acts did not apply to such trades, even though conducted under foreign bottoms
and under foreign flag, unless the carrier expressly exercised the option given by section 13 of the U.S.
Act to carry under the provisions of that Act. The fact that the U.S. coastwise flag monopoly did not
extend to the Philippine trade did not alter the fact that the U.S. Trade with the Islands is domestic.
(knaught, Ocean Bills of Lading, 1947 ed. p. 250 (Emphasis supplied.).
Having reached the foregoing conclusion, it would appear clear that action of petitioners has not yet lapsed or
prescribed, as erroneously held by the Court of Appeals, it appearing that the present action was brought
within one year after the delivery of the shipment in question..
As regards the contention of respondents that petitioners have the burden of showing that the loss complained
of did not take place under after the goods left the possession or custody of the carrier because they failed to
give notice of their loss or damage as required by law, which failures gives rise to the presumption that the
goods were delivered in the bill of lading, suffice it to state that, according to the Court of Appeals, the required
notice was given by the petitioners to the carrier or its agent on April 25, 1946. That notice is sufficient to
overcome the above presumption within the meaning of the law..
Wherefore the decision appealed from is reversed. Respondents, other than the Court of Appeals, are hereby
sentenced to pay to the petitioners the sum of P159.78, with legal interest thereon from the date of the filing of
the complaint, plus the costs of action..
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Concepcion and Reyes, J. B. L., JJ., concur.
Republic of the Philippines In the American Steamship Agencies cases, it was held that the action of Ang is based
SUPREME COURT on misdelivery of the cargo which should be distinguished from loss thereof. The one-year period
Manila provided for in section 3 (6) of the Carriage of Goods by Sea Act refers to loss of the cargo. What is
applicable is the four-year period of prescription for quasi-delicts prescribed in article 1146 (2) of
SECOND DIVISION the Civil Code or ten years for violation of a written contract as provided for in article 1144 (1) of
the same Code.
G.R. No. L-30805 December 26, 1984
As Ang filed the action less than three years from the date of the alleged misdelivery of the cargo, it
DOMINGO ANG, plaintiff-appellant, has not yet prescribed. Ang, as indorsee of the bill of lading, is a real party in interest with a cause of
vs. action for damages.
COMPANIA MARITIMA, MARITIME COMPANY OF THE PHILIPPINES and C.L.
DIOKNO, defendants-appellees. WHEREFORE, the order of dismissal is reversed and set aside. The case is remanded to the trial
court for further proceedings. Costs against the defendants.

SO ORDERED.
AQUINO, J.:
Makasiar (Chairman), Concepcion, Jr., Escolin and Cuevas, JJ., concur.
This case involves the recovery of damages by the consignee from the carrier in case
of misdelivery of the cargo which action was dismissed by the trial court on the grounds of lack of Abad Santos, J., took no part.
cause of action and prescription.

It should be noted that that legal point is already res judicata. In 1967 it was decided in favor of
plaintiff-appellant Domingo Ang in Ang vs. American Steamship Agencies, Inc., 125 Phil. 543 and 125
Phil. 1040, three cases. As observed by Ang's counsel, the facts of those cases and the instant case
are the same mutatis mutandis. It was held that Ang has a cause of action against the carrier which
has not prescribed

In the instant case, Ang on September 26, 1963, as the assignee of a bill of lading held by Yau Yue
Commercial Bank, Ltd. of Hongkong, sued Compania Maritima, Maritime Company of the
Philippines and C.L. Diokno. He prayed that the defendants be ordered to pay him solidarily the
sum of US$130,539.68 with interest from February 9, 1963 plus attorney's fees and damages.

Ang alleged that Yau Yue Commercial Bank agreed to sell to Herminio G. Teves under certain
conditions 559 packages of galvanized steel, Durzinc sheets. The merchandise was loaded on May
25, 1961 at Yawata, Japan in the M/S Luzon a vessel owned and operated by the defendants, to be
transported to Manila and consigned "to order" of the shipper, Tokyo Boeki, Ltd., which indorsed
the bill of lading issued by Compania Maritima to the order of Yau Yue Commercial Bank.

Ang further alleged that the defendants, by means of a permit to deliver imported articles,
authorized the delivery of the cargo to Teves who obtained delivery from the Bureau of Customs
without the surrender of the bill of lading and in violation of the terms thereof. Teves dishonored
the draft drawn by Yau Yue against him.

The Hongkong and Shanghai Banking Corporation made the corresponding protest for the draft's
dishonor and returned the bill of lading to Yau Yue. The bill of lading was indorsed to Ang.

The defendants filed a motion to dismiss Ang's complaint on the ground of lack of cause of action.
Ang opposed the motion. As already stated, the trial court on May 22, 1964 dismissed the complaint
on the grounds of lack of cause of action and prescription since the action was filed beyond the one-
year period provided in the Carriage of Goods by Sea Act.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 75118 August 31, 1987
SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and style of
"SEN HIAP HING," respondents.
NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the
covering bill of lading limiting to a fixed amount the liability of the carrier for loss or damage to the cargo
where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and forwarding
company licensed to do business in the Philippines, received from Seaborne Trading Company in Oakland,
California a shipment consigned to Sen Hiap Hing the business name used by Paulino Cue in the wholesale and
retail trade which he operated out of an establishment located on Borromeo and Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill of lading. The bill
described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume measurements Sea-land
charged the shipper the total amount of US$209.28 2 for freight age and other charges. The shipment was
loaded on board the MS Patriot, a vessel owned and operated by Sea-Land, for discharge at the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996 into the
custody of the arrastre contractor and the customs and port authorities. 3 Sometime between February 13 and
16, 1981, after the shipment had been transferred, along with other cargoes to Container No. 40158 near
Warehouse 3 at Pier 3 in South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and
has never been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the lost
shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle for US$4,000.00, or its then
Philippine peso equivalent of P30,600.00. asserting that said amount represented its maximum liability for the
loss of the shipment under the package limitation clause in the covering bill of lading.6 Cue rejected the offer
and thereafter brought suit for damages against Sea-Land in the then Court of First Instance of Cebu, Branch
X.7 Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land to pay him P186,048.00
representing the Philippine currency value of the lost cargo, P55,814.00 for unrealized profit with one (1%)
percent monthly interest from the filing of the complaint until fully paid, P25,000.00 for attorney's fees and
P2,000.00 as litigation expenses.8
Sea-Land appealed to the Intermediate Appellate Court.9 That Court however affirmed the decision of the Trial
Court xxx in all its parts ... . 10 Sea-Land thereupon filed the present petition for review which, as already
stated, poses the question of whether, upon the facts above set forth, it can be held liable for the loss of the
shipment in any amount beyond the limit of US$600.00 per package stipulated in the bill of lading.
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the
carrier or shipper for loss of, or damage to, goods being transported under said bill ,although that document
may have been as in practice it oftentimes is drawn up only by the consignor and the carrier without the
intervention of the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some length into
the reasons behind this when, upon a claim made by the consignee of a motion picture film shipped by air
that he was never a party to the contract of transportation and was a complete stranger thereto, it said:
But appellant now contends that he is not suing on a breach of contract but on a tort as
provided for in Art. 1902 of the Civil Code. We are a little perplexed as to this new theory of
the appellant. First, he insists that the articles of the Code of Commerce should be applied:
that he invokes the provisions of aid Code governing the obligations of a common carrier to
make prompt delivery of goods given to it under a contract of transportation. Later, as
already said, he says that he was never a party to the contract of transportation and was a
complete stranger to it, and that he is now suing on a tort or a violation of his rights as a
stranger (culpa aquiliana) If he does not invoke the contract of carriage entered into with
the defendant company, then he would hardly have any leg to stand on. His right to prompt
delivery of the can of film at the Phil. Air Port stems and is derived from the contract of
carriage under which contract, the PAL undertook to carry the can of film safely and to
deliver it to him promptly. Take away or ignore that contract and the obligation to carry and
to deliver and right to prompt delivery disappear. Common carriers are not obligated by
law to carry and to deliver merchandise, and persons are not vested with the right to
prompt delivery, unless such common carriers previously assume the obligation. Said rights
and obligations are created by a specific contract entered into by the parties. In the present
case, the findings of the trial court which as already stated, are accepted by the parties and
which we must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one
side, and the defendant company on the other, entered into a contract of transportation (p.
29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures Inc. through
previous agreement with Mendoza acted as the latter's agent. When he negotiated with the
LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga town
fiesta, he most probably authorized and enjoined the Picture Company to ship the film for
him on the PAL on September 17th. Another interpretation is that even if the LVN Pictures
Inc. as consignor of its own initiative, and acting independently of Mendoza for the time
being, made Mendoza as consignee, a stranger to the contract if that is possible,
nevertheless when he, Mendoza appeared at the Phil Air Port armed with the copy of the Air
Way Bill (Exh. 1) demanding the delivery of the shipment to him, he thereby made himself a
party to the contract of transportation. The very citation made by appellant in his
memorandum supports this view. Speaking of the possibility of a conflict between the order
of the shipper on the one hand and the order of the consignee on the other, as when the
shipper orders the shipping company to return or retain the goods shipped while the
consignee demands their delivery, Malagarriga in his book Codigo de Comercio Comentado,
Vol. 1, p. 400, citing a decision of the Argentina Court of Appeals on commercial matters,
cited by Tolentino in Vol. II of his book entitled "Commentaries and Jurisprudence on the
Commercial Laws of the Philippines" p. 209, says that the right of the shipper to
countermand the shipment terminates when the consignee or legitimate holder of the bill of
lading appears with such big of lading before the carrier and makes himself a party to the
contract. Prior to that time he is a stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of
the old Civil Code (now Art, 1311, second paragraph) which reads thus:
Should the contract contain any stipulation in favor of a third person, he
may demand its fulfillment provided he has given notice of his
acceptance to the person bound before the stipulation has been revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier
contains the stipulations of delivery to Mendoza as consignee. His demand for the delivery
of the can of film to him at the Phil Air Port may be regarded as a notice of his acceptance of
the stipulation of the delivery in his favor contained in the contract of carriage and delivery.
In this case he also made himself a party to the contract, or at least has come to court to
enforce it. His cause of action must necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it under a contract of
carriage is governed by the laws of the country of destination 12 and the goods in question were shipped from
the United States to the Philippines, the liability of petitioner Sea-Land to the respondent consignee is
governed primarily by the Civil Code, and as ordained by the said Code, suppletorily, in all matters not
determined thereby, by the Code of Commerce and special laws. 13 One of these suppletory special laws is the
Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65, approved
on October 22, 1936. Sec. 4(5) of said Act in part reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500
 per package lawful money of the United States, or in case of goods not shipped in packages,
per customary freight unit, or the equivalent of that sum in other currency, unless the
nature and value of such goods have been declared by the shipper before shipment and
inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be
liable for more than the amount of damage actually sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to its shipping
clients 14 is a virtual copy of the first paragraph of the foregoing provision. It says:
22. VALUATION. In the event of any loss, damage or delay to or in connection with goods
exceeding in actual value $500 per package, lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, the value of the goods shall be
deemed to be $500 per package or per customary freight unit, as the case may be, and the
carrier's liability, if any, shall be determined on the basis of a value of $500 per package or
customary freight unit, unless the nature and a higher value shall be declared by the shipper
in writing before shipment and inserted in this Bill of Lading.
And in its second paragraph, the bill states:
If a value higher than $500 shag have been declared in writing by the shipper upon delivery
to the carrier and inserted in this bill of lading and extra freight paid, if required and in such
case if the actual value of the goods per package or per customary freight unit shall exceed
such declared value, the value shall nevertheless be deemed to be declared value and the
carrier's liability, if any, shall not exceed the declared value and any partial loss or damage
shall be adjusted pro rata on the basis of such declared value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and obligations of
common carriers to the provisions of the Code of Commerce and of special laws in matters not regulated by
said (Civil) Code, the Court fails to fathom the reason or justification for the Appellate Court's pronouncement
in its appealed Decision that the Carriage of Goods by Sea Act " ... has no application whatsoever in this
case. 15 Not only is there nothing in the Civil Code which absolutely prohibits agreements between shipper
and carrier limiting the latter's liability for loss of or damage to cargo shipped under contracts of carriage; it is
also quite clear that said Code in fact has agreements of such character in contemplation in providing, in its
Articles 1749 and 1750, that:
ART. 1749 A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or
inconsistent with any of the just-cited provisions of the Civil Code. Said section merely gives more flesh and
greater specificity to the rather general terms of Article 1749 (without doing any violence to the plain intent
thereof) and of Article 1750, to give effect to just agreements limiting carriers' liability for loss or damage
which are freely and fairly entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity and
binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the
basis alone of the cited Civil Code provisions. That said stipulation is just and reasonable is arguable from the
fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the
shipment in the bill of lading. To hold otherwise would amount to questioning the justice and fairness of that
law itself, and this the private respondent does not pretend to do. But over and above that consideration, the
lust and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding acrrual of liability limitation by the simple and surely far from onerous expedient of declaring the
nature and value of the shipment in the bill of lading. And since the shipper here has not been heard to
complaint of having been "rushed," imposed upon or deceived in any significant way into agreeing to ship the
cargo under a bill of lading carrying such a stipulation in fact, it does not appear that said party has been
heard from at all insofar as this dispute is concerned there is simply no ground for assuming that its
agreement thereto was not as the law would require, freely and fairly sought and given.
The private respondent had no direct part or intervention in the execution of the contract of carriage between
the shipper and the carrier as set forth in the bill of lading in question. As pointed out in Mendoza vs. PAL,
supra, the right of a party in the same situation as respondent here, to recover for loss of a shipment consigned
to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a
relation of agency that may exist between him and the shipper or consignor, or his status as a stranger in
whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands
fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can he
assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as to be hardly readable.
Parenthetically, it may be observed that in one comparatively recent case 16 where this Court found that a
similar package limitation clause was "(printed in the smallest type on the back of the bill of lading, it
nonetheless ruled that the consignee was bound thereby on the strength of authority holding that such
provisions on liability limitation are as much a part of a bill of lading as though physically in it and as though
placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon
stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation
unless the shipper declares a higher value and inserts it into said contract or bill. This pro position, moreover,
rests upon an almost uniform weight of authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly authorizes trans-
shipment of the goods at any point in the voyage in these terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its or
his discretion and although transshipment or forwarding of the goods may not have been
contemplated or provided for herein, may at port of discharge or any other place
whatsoever transship or forward the goods or any part thereof by any means at the risk and
expense of the goods and at any time, whether before or after loading on the ship named
herein and by any route, whether within or outside the scope of the voyage or beyond the
port of discharge or destination of the goods and without notice to the shipper or consignee.
The carrier or master may delay such transshipping or forwarding for any reason, including
but not limited to awaiting a vessel or other means of transportation whether by the carrier
or others.
Said provision obviates the necessity to offer any other justification for offloading the shipment in question in
Manila for transshipment to Cebu City, the port of destination stipulated in the bill of lading. Nonetheless, the
Court takes note of Sea-Land's explanation that it only directly serves the Port of Manila from abroad in the
usual course of voyage of its carriers, hence its maintenance of arrangements with a local forwarder. Aboitiz
and Company, for delivery of its imported cargo to the agreed final point of destination within the Philippines,
such arrangements not being prohibited, but in fact recognized, by law. 18
Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the final
port of destination and that the fact that transshipment was made on an interisland vessel did not remove the
contract of carriage of goods from the operation of said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon by
petitioner Sea Land form no part of the short-form bill of lading attached to his complaint before the Trial
Court and appear only in the long form of that document which, he claims. SeaLand offered (as its Exhibit 2) as
an unused blank form with no entries or signatures therein. He, however, admitted in the Trial Court that
several times in the past shipments had been delivered to him through Sea-Land, 20 from which the
assumption may fairly follow that by the time of the consignment now in question, he was already reasonably
apprised of the usual terms covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by Sea Act
on package limitation [sec 4(5) of the Act hereinabove referred to] are as much a part of a bill of lading as
though actually placed therein by agreement of the parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes
accepted said bill. Having done so, he
... becomes bound by all stipulations contained therein whether on the front or the back
thereof. Respondent cannot elude its provisions simply because they prejudice him and take
advantage of those that are beneficial. Secondly, the fact that respondent shipped his goods
on board the ship of petitioner and paid the corresponding freight thereon shows that he
impliedly accepted the bill of lading which was issued in connection with the shipment in
question, and so it may be said that the same is finding upon him as if it had been actually
signed by him or by any other person in his behalf. ... 22.
There is one final consideration. The private respondent admits 23 that as early as on April 22, 1981, Sea-Land
had offered to settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the shipment under
the bill of lading. This Court having reached the conclusion that said sum is all that is justly due said
respondent, it does not appear just or equitable that Sea-Land, which offered that amount in good faith as early
as six years ago, should, by being made to pay at the current conversion rate of the dollar to the peso, bear for
its own account all of the increase in said rate since the time of the offer of settlement. The decision of the
Regional Trial Court awarding the private respondent P186,048.00 as the peso value of the lost shipment is
clearly based on a conversion rate of P8.00 to US$1.00, said respondent having claimed a dollar value of
$23,256.00 for said shipment.24 All circumstances considered, it is just and fair that Sea-Land's dollar
obligation be convertible at the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set aside. The
stipulation in the questioned bill of lading limiting Sea-Land's liability for loss of or damage to the shipment
covered by said bill to US$500.00 per package is held valid and binding on private respondent. There being no
question of the fact that said shipment consisted of eight (8) cartons or packages, for the loss of which Sea-
Land is therefore liable in the aggregate amount of US$4,000.00, it is the judgment of the Court that said
petitioner discharge that obligation by paying private respondent the sum of P32,000.00, the equivalent in
Philippine currency of US$4,000.00 at the conversion rate of P8.00 to $1.00. Costs against private respondent.
SO ORDERED.
Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 77638 July 12, 1990
MARITIME AGENCIES & SERVICES, INC., petitioner,
vs.
COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON, LTD., respondents.
G.R. No. 77674 July 12, 1990
UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner,
vs.
COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES & SERVICES, INC., and/or VIVA CUSTOMS
BROKERAGE, respondents.
Del Rosario & Del Rosario for petitioner in G.R. No. 77638.
Zapa Aguillardo & Associates for petitioner in G.R. No. 77674.
Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.
CRUZ, J.:
Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping Company of
Hongkong the motor vessel named "Hongkong Island" for the shipment of 8073.35 MT (gross) bagged urea
from Novorossisk, Odessa, USSR to the Philippines, the parties signing for this purpose a Uniform General
Charter dated August 9, 1979. 1
Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee, 3,400.04 to
be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The goods were insured by the consignee
with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. 3
Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray Company, Inc. as the
owner's agent.4
The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's goods, then proceeded
to Cebu on October 19, 1979, to discharge the rest of the cargo. On October 31, 1979, the consignee filed a
formal claim against Maritime, copy furnished Macondray, for the amount of P87,163.54, representing C & F
value of the 1,383 shortlanded bags. 5 On January 12, 1980, the consignee filed another formal claim, this time
against Viva Customs Brokerage, for the amount of P36,030.23, representing the value of 574 bags of net
unrecovered spillage. 6
These claims having been rejected, the consignee then went to Union, which on demand paid the total
indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of the consignee, Union then filed
on September 19, 1980, a complaint for reimbursement of this amount, with legal interest and attorney's fees,
against Hongkong Island Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs
Brokerage. 7 On April 20, 1981, the complaint was amended to drop Viva and implead Macondray Company,
Inc. as a new defendant. 8
On January 4, 1984, after trial, the trial court rendered judgment holding the defendants liable as follows:
(a) defendants Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay the
plaintiff the sum of P87,163.54 plus 12% interest from April 20, 1981 until the whole
amount is fully paid, P1,000.00 as attorney's fees and to pay one-half (1/2) of the costs; and
(b) defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum of P36,030.23,
plus 12% interest from April 20, 1981 until the whole amount is fully paid, P600.00 as
attorney's fees and to pay one-half (1/2) of the costs.9
Petitioner appealed the decision to the Court of Appeals, which rendered a decision on November 28, 1986, the
dispositive portion of which reads:
WHEREFORE, the decision appealed from is modified, finding the charterer
Transcontinental Fertilizer Co., Ltd. represented by its agent Maritime Agencies & Services,
Inc. liable for the amount of P87,163.54 plus interest at 12% plus attorney's fees of
P1,000.00. Defendant Hongkong Island Co., Ltd. represented by Macondray Co., Inc. are
accordingly exempted from any liability. 10
Maritime and Union filed separate motions for reconsideration which were both denied. The movants are now
before us to question the decision of the respondent court.
In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the charterer's agent and should
not answer for whatever responsibility might have attached to the principal. It also argues that the respondent
court erred in applying Articles 1734 and 1735 of the Civil Code in determining the charterer's liability.
In G.R. No. 77674, Union asks for the modification of the decision of the respondent court so as to make
Maritime solidarily and solely liable, its principal not having been impleaded and so not subject to the
jurisdiction of our courts.
These two cases were consolidated and given due course, the parties being required to submit simultaneous
memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray Company, Inc., although
they pointed out that they were not involved in the petitions.
There are three general categories of charters, to wit, the demise or "bareboat charter," the time charter and
the voyage charter.
A demise involves the transfer of full possession and control of the vessel for the period covered by the
contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while
manning and supplying the ship as well. 11
A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the right to
direct the movements of the vessel during the chartering period, although the owner retains possession and
control. 12
A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the purpose of
transporting goods for the charterer. The voyage charter is a contract of affreightment and is considered a
private carriage. 13
Tested by those definitions, the agreement entered into in the cases at bar should be considered. This brings us
to the basic question of who, in this kind of charter, shall be liable for the cargo.
A voyage charter being a private carriage, the parties may freely contract respecting liability for damage to the
goods and other matters. The basic principle is that "the responsibility for cargo loss falls on the one who
agreed to perform the duty involved" in accordance with the terms of most voyage charters. 14
This is true in the present cases where the charterer was responsible for loading, stowage and discharging at
the ports visited, while the owner was responsible for the care of the cargo during the voyage. Thus, Par. 2 of
the Uniform General Charter read:
2. Owners are to be responsible for loss of or damage to the goods or for delay in delivery of
the goods only in case the loss, damage or delay has been caused by the improper or
negligent stowage of the goods or by personal want of due diligence on the part of the
Owners or their Manager to make the vessel in all respects seaworthy and to secure that she
is properly manned, equipped and supplied or by the personal act or default of the Owners
or their Manager.
And the Owners are responsible for no loss or damage or delay arising from any other cause
whatsoever, even from the neglect or default of the Captain or crew or some other person
employed by the Owners onboard or ashore for whose acts they would, but for this clause,
be responsible, or from unseaworthiness of the vessel on loading or commencement of the
voyage or at any time whatsoever.
Damage caused by contact with or leakage, smell or evaporation from other goods or by the
inflammable or explosive nature or insufficient package of other goods not to be considered
as caused by improper or negligent stowage, even if in fact so caused.
while Clause 17 of Additional Clauses to Charter party provided:
The cargo shall be loaded, stowed and discharged free of expense to the vessel under the
Master's supervision. However, if required at loading and discharging ports the vessel is to
give free use of winches and power to drive them gear, runners and ropes. Also slings, as on
board. Shore winchmen are to be employed and they are to be for Charterers' or Shippers'
or Receivers' account as the case may be. Vessel is also to give free use of sufficient light, as
on board, if required for night work. Time lost through breakdown of winches or derricks is
not to count as laytime.
In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial court rejected similar stipulations as
contrary to public policy and, applying the provisions of the Civil Code on common carriers and of the Code of
Commerce on the duties of the ship captain, held the vessel liable in damages for loss of part of the cargo it was
carrying. This Court reversed, declaring as follows:
The provisions of our Civil Code on common carriers were taken from Anglo-American law.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier. As a private carrier, a
 stipulation exempting the owner from liability for the negligence of its agent is not against
public policy, and is deemed valid.
Such doctrine we find reasonable. The Civil Code provisions on common carriers should not
be applied where the carrier is not acting as such but as a private carrier. The stipulation in
the charter party absolving the owner from liability for loss due to the negligence of its
agent would be void only if the strict public policy governing common carriers is applied.
Such policy has no force where the public at large is not involved, as in the case of a ship
totally chartered for the use of a single party.
Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case that the vessel
was at fault. In the cases at bar, the trial court found that 1,383 bags were shortlanded, which could only mean
that they were damaged or lost on board the vessel before unloading of the shipment. It is not denied that the
entire cargo shipped by the charterer in Odessa was covered by a clean bill of lading. 16 As the bags were in
good order when received in the vessel, the presumption is that they were damaged or lost during the voyage
as a result of their negligent improper stowage. For this the ship owner should be held liable.
But we do agree that the period for filing the claim is one year, in accordance with the Carriage of Goods by Sea
Act. This was adopted and embodied by our legislature in Com. Act No. 65 which, as a special law, prevails over
the general provisions of the Civil Code on prescription of actions. Section 3(6) of that Act provides as follows:
In any event, the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered; Provided, that if a notice of loss for damage;
either apparent or concealed, is not given as provided for in this section, that fact shall not
effect or prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered.
This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila Railroad
Co., 17where it was held:
Under the facts of this case, we held that the one-year period was correctly reckoned by the
trial court from December 19, 1961, when, as agreed upon by the parties and as shown in
the tally sheets, the cargo was discharged from the carrying vessel and delivered to the
Manila Port Service. That one-year period expired on December 19, 1962. Inasmuch as the
action was filed on December 21, 1962, it was barred by the statute of limitations.
The one-year period in the cases at bar should commence on October 20, 1979, when the last item was
delivered to the consignee. 18 Union's complaint was filed against Hongkong on September 19, 1980, but
tardily against Macondray on April 20, 1981. The consequence is that the action is considered prescribed as far
as Macondray is concerned but not against its principal, which is what matters anyway.
As regards the goods damaged or lost during unloading, the charterer is liable therefor, having assumed this
activity under the charter party "free of expense to the vessel." The difficulty is that Transcontinental has not
been impleaded in these cases and so is beyond our jurisdiction. The liability imposable upon it cannot be
borne by Maritime which, as a mere agent, is not answerable for injury caused by its principal. It is a well-
settled principle that the agent shall be liable for the act or omission of the principal only if the latter is
undisclosed. 19
Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the case
of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that case is applicable.
In that case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel owner
and the charterer did not stipulate in the Charter party on their separate respective liabilities for the cargo.
The loss/damage to the cargo was sustained while it was still on board or under the custody of the vessel. As
the charterer was itself the carrier, it was made liable for the acts of the ship captain who was responsible for
the cargo while under the custody of the vessel.
As for the charterer's agent, the evidence showed that it represented the vessel when it took charge of the
unloading of the cargo and issued cargo receipts (or tally sheets) in its own name. Claims against the vessel for
the losses/damages sustained by that cargo were also received and processed by it. As a result, the charterer's
agent was also considered a ship agent and so was held to be solidarily liable with its principal.
The facts in the cases at bar are different. The charterer did not represent itself as a carrier and indeed
assumed responsibility ability only for the unloading of the cargo, i.e, after the goods were already outside the
custody of the vessel. In supervising the unloading of the cargo and issuing Daily Operations Report and
Statement of Facts indicating and describing the day-to-day discharge of the cargo, Maritime acted in
representation of the charterer and not of the vessel. It thus cannot be considered a ship agent. As a mere
charterer's agent, it cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo
outside the custody of the vessel. Notably, Transcontinental was disclosed as the charterer's principal and
there is no question that Maritime acted within the scope of its authority.
Hongkong and Macondray point out in their memorandum that the appealed decision is not assailed insofar as
it favors them and so has become final as to them. We do not think so. First of all, we note that they were
formally impleaded as respondents in G.R No. 77674 and submitted their comment and later their
memorandum, where they discussed at length their position vis-a-vis the claims of the other parties. Secondly,
we reiterate the rule that even if issues are not formally and specifically raised on appeal, they may
nevertheless be considered in the interest of justice for a proper decision of the case.itc-asl Thus, we have
held that:
Besides, an unassigned error closely related to the error properly assigned, or upon which
the determination of the question raised by the error properly assigned is dependent, will
be considered by the appellate court notwithstanding the failure to assign it as error.
At any rate, the Court is clothed with ample authority to review matters, even if they are not
assigned as errors in their appeal, if it finds that their consideration is necessary in arriving
at a just decision of the case. 21
xxx xxx xxx
Issues, though not specifically raised in the pleadings in the appellate court, may, in the
interest of justice, be properly considered by said court in deciding a case, if they are
questions raised in the trial court and are matters of record having some bearing on the
issue submitted which the parties failed to raise or the lower court ignore(d). 22
xxx xxx xxx
While an assignment of error which is required by law or rule of court has been held
essential to appellate review, and only those assigned will be considered, there are a
number of cases which appear to accord to the appellate court a broad discretionary power
to waive this lack of proper assignment of errors and consider errors not assigned. 23
In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of Manila held:
The Court, on the basis of the evidence, finds nothing to disprove the finding of the marine
and cargo surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were "discharged
ex-vessel" and there were "shortlanded" "1,383 bags", valued at P87,163.54. This sum
should be the principal and primary liability and responsibility of the carrying vessel. Under
the contract for the transportation of goods, the vessel's responsibility commence upon the
actual delivery to, and receipt by the carrier or its authorized agent, until its final discharge
at the port of Manila. Defendant Hongkong Island Co., Ltd., as "shipowner" and represented
by the defendant Macondray & Co., Inc., as its local agent in the Philippines, should be
responsible for the value of the bags of urea fertilizer which were shortlanded.
The remainder of the claim in the amount of P36,030.23, representing the value of the 574
bags of unrecovered spillages having occurred after the shipment was discharged from the
vessel unto the ex-lighters as well as during the discharge from the lighters to the truck
which transported the shipment to the consignee's warehouses should be for the account of
the defendant Maritime Agencies & Services, Inc.
We affirm the factual findings but must modify the legal conclusions. As previously discussed, the liability of
Macondray can no longer be enforced because the claim against it has prescribed; and as for Maritime, it
cannot be held liable for the acts of its known principal resulting in injury to Union. The interest must also be
reduced to the legal rate of 6%, conformably to our ruling in Reformina v. Tomol 24 and Article 2209 of the Civil
Code, and should commence, not on April 20, 1981, but on September 19, 1980, date of the filing of the original
complaint.
WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is REINSTATED as
above modified. The parties shall bear their respective costs.
SO ORDERED.
Narvasa, C.J., Gancayco, Grio-Aquino and Medialdea, JJ., concur.
SECOND DIVISION
[G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES
DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO.,
INC. and the CHARTER INSURANCE CORPORATION, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of
Appeals dated December 14, 1995[1] and its Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805
entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. South Sea Surety
Insurance Co., Inc. and The Charter Insurance Corporation.[3]
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner
Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August
to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014,
MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022.[4]
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The
pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09
were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a
total amount of US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-
party inspector to examine whether the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was
discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance
contract.Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is a
factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the amount
claimed by petitioners because the damage to the goods is due to factory defects which are not covered by the
insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private
respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The only
exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the
part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the
plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest
as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it
was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the
vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered." Respondent court ruled that this provision
applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. vs.
Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already
prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of
Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the complaint.[7]
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of
Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged
from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or
the date when they should have been delivered. Under this provision, only the carrier's liability is extinguished
if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's
liability is based not on the contract of carriage but on the contract of insurance. A close reading of the law
reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and
the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under
the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro[8] and the other cases[9] cited therein
does not support respondent court's view that the insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the
insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured
goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the amount it
paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than one year after
delivery of the goods on December 17, 1977. The court held that the Insurer was already barred from filing a
claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be
filed within one year after delivery of the goods or the date when the goods should have been delivered. The
court said that "the coverage of the Act includes the insurer of the goods."[10]
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at
bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks"
insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper,
the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of
Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim
against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may
no longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract. An
insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to
indemnify another for loss or damage which he may suffer from a specified peril. [11] An "all risks" insurance
policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. [12] Thus, when
private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the
latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance
with Article 1144 of the New Civil Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated
December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision of the
Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
EN BANC
[G.R. No. L-5458. September 16, 1953.]
LUZON STEVEDORING CO., INC., and VISAYAN STEVEDORE TRANSPORTATION CO., Petitioners, vs. THE
PUBLIC SERVICE COMMISSION and THE PHILIPPINE SHIPOWNERS ASSOCIATION, Respondents.
DECISION
TUASON, J.:
Petitioners apply for review of a decision of the Public Service Commission restraining them "from further
operating their watercraft to transport goods for hire or compensation between points in the Philippines until
the rates they propose to charge are approved by this Commission."
The facts are summarized by the Commission as follows:
". . . respondents are corporations duly organized and existing under the laws of the Philippines,
mainly engaged in the stevedoring or lighterage and harbor towage business. At the same time, they
are engaged in interisland service which consists of hauling cargoes such as sugar, oil, fertilizer and
other commercial commodities which are loaded in their barges and towed by their tugboats from
Manila to various points in the Visayan Islands, particularly in the Provinces of Negros Occidental and
Capiz, and from said places to Manila. For this service respondents charge freightage on a unit price
with rates ranging from P0.50 to P0.62 1/2 per bag or picul of sugar loaded or on a unit price per ton
in the case of fertilizer or sand. There is no fixed route in the transportation of these cargoes, the
same being left at the indication of the owner or shipper of the goods. The barge and the tugboats are
manned by the crew of respondents and, in case of damage to the goods in transit caused by the
negligence of said crews, respondents are liable therefor. The service for which respondents charge
freightage covers the hauling or carriage of the goods from the point of embarkation to the point of
disembarkation either in Manila or in any point in the Visayan Islands, as the case may be.
"The evidence also sufficiently establishes that respondents are regularly engaged in this hauling
business serving a limited portion of the public. Respondent Luzon Stevedoring Company, Inc., has
among its regular customers the San Miguel Glass Factory, PRATRA, Shell Co., of P.I., Ltd., Standard
Oil Co., of New York and Philippine-Hawaiian; while respondent Visayan Stevedore Transportation
Co., has among its regular customers the Insular Lumber, Shell Company, Ltd., Kim Kee Chua Yu & Co.,
PRATRA and Luzon Merchandising Corporation. During the period from January, 1949 and up to the
present, respondent Luzon Stevedoring Co. Inc., has been rendering to PRATRA regularly and on
many occasions such service by carrying fertilizer from Manila to various points in the Provinces of
Negros Occidental and Capiz, such as Hinigatan, Silay, Fabrica, Marayo, Mambaquid, Victorias and
Pilar, and on the return trip sugar was loaded from said provinces to Manila. For these services, as
evidenced by Exhibits A, A-1, A-2, A-3 and A-4, respondent Luzon Stevedoring Company, Inc., charged
PRATRA at the rate of P0.60 per picul or bag of sugar and, according to Mr. Mauricio Rodriguez, chief
of the division in charge of sugar and fertilizer of the PRATRA, for the transportation of fertilizer, this
respondent charged P12 per metric ton. During practically the same period, respondent Visayan
Stevedore Transportation Company transported in its barges and towed by its tugboats sugar for Kim
Kee Chua Yu & Company coming from Victorias, Marayo and Pilar to Manila, and for Luzon
Merchandising Corporation, from Hinigaran, Bacolod, Marayo and Victorias to Manila. For such
service respondent Visayan Stevedore Transportation Company charge Kim Kee Chua Yu Company
for freightage P0.60 per picul or bag as shown in Exhibits C, C-1, C-2, C-3, C-4, C- 5, C-6, C-7 and C-8,
and Luzon Merchandising Corporation was also charged for the same service and at the same rate as
shown in Exhibits B, B-1 and B-2."
It was upon these findings that the Commission made the order now sought to be reviewed, upon complaint of
the Philippine Shipowners' Association charging that the then respondents were engaged in the transportation
of cargo in the Philippines for hire or compensation without authority or approval of the Commission, having
adopted, filed and collected freight charges at the rate of P0.60 per bag or picul, particularly sugar, loaded and
transported in their lighters and towed by their tugboats between different points in the Province of Negros
Occidental and Manila, which said rates resulted in ruinous competition with complainant.
Section 13 (b) of the Public Service Law (Commonwealth Act No. 146) defines public service thus:
"The term 'public service' includes every person that now or hereafter may own, operate, manage, or
control in the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes any common carrier,
railroad, street railway, traction railway, subway, motor vehicle, either for freight or passenger, or
both, with or without fixed route and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines, ferries, and small water craft,
engaged in the transportation of passengers and freight, shipyard, marine railway, marine repair
shop, warehouse, wharf or dock, ice plant, ice-refrigeretion plant, canal, irrigation system, sewerage,
gas, electric light, heat and power, water supply and power, petroleum, sewerage system, telephone,
wire or wireless telegraph system and broadcasting radio stations."
It is not necessary, under this definition, that one holds himself out as serving or willing to serve the public in
order to be considered public service.
In Luzon Brokerage Company vs. Public Service Commission (40 Off. Gaz., 7th Supplement, p. 271), this court
declared that "Act 454 is clear in including in the definition of a public service that which is rendered for
compensation, although limited exclusively to the customers of the petitioner."
In that case, the Luzon Brokerage Company, a customs broker, had been receiving, depositing and delivering
goods discharged from ships at the pier to its customers. As here, the Luzon Brokerage was then rendering
transportation service for compensation to a limited clientele, not to the public at large.
In the United States where, it is said, there is no fixed definition of what constitutes public service or public
utility, it is also held that it is not always necessary, in order to be a public service, that an organization be
dedicated to public use, i.e., ready and willing to serve the public as a class. It is only necessary that it must in
some way be impressed with a public interest; and whether the operation of a given business is a public utility
depends upon whether or not the service rendered by it is of a public character and of public consequence and
concern. (51 C. J. 5.) Thus, a business may be affected with public interest and regulated for public good
although not under any duty to serve the public. (43 Am. Jur., 572.)
It can scarcely be denied that the contracts between the owners of the barges and the owners of the cargo at
bar were ordinary contracts of transportation and not of lease. Petitioners' watercraft was manned entirely by
crews in their employ and payroll, and the operation of the said craft was under their direction and control, the
customers assuming no responsibility for the goods handled on the barges. The great preponderance of the
evidence contradicts the assertion that there was any physical or symbolic conveyance of the possession of the
tugboats and barges to the shippers. Whether the agreements were written or verbal, the manner of payment
of freight charges, the question who loaded and unloaded the cargo, the propriety of the admission of certain
receipts in evidence, etc., to all of which the parties have given much attention these are matters of form which
do not alter the essential nature of the relationship of the parties to the transactions as revealed by the
fundamental facts of record.
It is contended that "if the Public Service Act were to be construed in such manner as to include private lease
contracts, said law would be unconstitutional," seemingly implying that, to prevent the law from being in
contravention of the Constitution, it should be so read as to embrace only those persons and companies that
are in fact engaged in public service" with its corresponding qualification of an offer to serve indiscriminately
the public."
It has been already shown that the petitioners' lighters and tugboats were not leased, but used to carry goods
for compensation at a fixed rate for a fixed weight. At the very least, they were hired, hired in the sense that the
shippers did not have direction, control, and maintenance thereof, which is a characteristic feature of lease.
On the second proposition, the Public Service Commission has, in our judgment, interpreted the law in
accordance with legislative intent. Commonwealth Act No. 146 declares in unequivocal language that an
enterprise of any of the kinds therein enumerated is a public service if conducted for hire or compensation
even if the operator deals only with a portion of the public or limited clientele.
It has been seen that public utility, even where the term is not defined by statute, is not determined by the
number of people actually served. Nor does the mere fact that service is rendered only under contract prevent
a company from being a public utility. (43 Am. Jur., 573.) On the other hand, casual or incidental service devoid
of public character and interest, it must be admitted, is not brought within the category of public utility. The
demarkation line is not susceptible of exact description or definitions, each case being governed by its peculiar
circumstances.
"It is impossible to lay down any general rule on the subject whether the rendering of incidental
service to members of the public by an individual or corporation whose principal business is of a
different nature constitute such person a public utility. In the result reached, the cases are in conflict,
as the question involved depends on such factors as the extent of service, whether such person or
 company has held himself or itself out as ready to serve the public or a portion of the public
generally, or in other ways conducted himself or itself as a public utility. Tn several cases, it has been
held that the incidental service rendered to others constituted such person or corporation a public
utility, but in other cases, a contrary decision has been reached." (43 Am. Jur., 573.)
The transportation service which was the subject of complaint was not casual or incidental. It had been carried
on regularly for years at almost uniform rates of charges. Although the number of the petitioners' customers
was limited, the value of goods transported was not inconsiderable. Petitioners did not have the same
customers all the time embraced in the complaint, and there was no reason to believe that they would not
accept, and there was nothing to prevent them from accepting, new customers that might be willing to avail of
their service to the extent of their capacity. Upon the well-established facts as applied to the plain letter of
Commonwealth Act No. 146, we are of the opinion that the Public Service Commission's order does not invade
private rights of property or contract.
In at least one respect, the business complained of was a matter of public concern. The Public Service Law was
enacted not only to protect the public against unreasonable charges and poor, inefficient service, but also to
prevent ruinous competition. That, we venture to say, is the main purpose in bringing under the jurisdiction of
the Public Service Commission motor vehicles, other means of transportation, ice plants, etc., which cater to a
limited portion of the public under private agreements. To the extent that such agreements may tend to wreck
or impair the financial stability and efficiency of public utilities who do offer service to the public in general,
they are affected with public interest and come within the police power of the state to regulate.
Just as the legislature may not "declare a company or enterprise to be a public utility when it is not inherently
such," a public utility may not evade control and supervision of its operation by the government by selecting
its customers under the guise of private transactions.
For the rest, the constitutionality of Commonwealth Act No. 146 was upheld, implicitly in Luzon Brokerage
Company vs. Public Service Commission, supra, and explicitly in Pangasinan Transportation Company vs.
Public Service Commission (70 Phil., 221).
Were there serious doubts, the courts should still be reluctant to invalidate the Public Service Law or any
provision thereof. Although the legislature can not, by its mere declaration, make something a public utility
which is not in fact such, "the public policy of the state as announced by the legislature will be given due
weight, and the determination of the legislature that a particular business is subject to the regulatory power,
because the public welfare is dependent upon its proper conduct and regulation, will not lightly be
disregarded by the courts." (51 C. J. 5.)
The objection to the designation of Attorney Aspillera as commissioner to take the evidence was tardy. It was
made for the first time after decision was rendered, following a prolonged hearing in which the petitioners
crossexamined the complainant's witnesses and presented their own evidence.
The point is procedural, not jurisdictional, and may be waived by express consent or acquiescence. So it was
held in Everett Steamship Corporation vs. Chua Hiong, 90 Phil. 64 and La Paz Ice Plant and Cold Storage
Company vs. Comision de Utilidades Pblicas et al., 89 Phil., 109.
Upon the foregoing considerations, the appealed order of the Public Service Commission is affirmed, with costs
against the petitioners.chanroblesvirtualawlibrary
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61461 August 21, 1987
EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners,
vs.
PANTRANCO SOUTH EXPRESS, INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner,
vs.
HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents.
GANCAYCO, J.:
The question that is posed in these petitions for review is whether the sea can be considered as a continuation
of the highway. The corollary issue is whether a land transportation company can be authorized to operate a
ferry service or coastwise or interisland shipping service along its authorized route as an incident to its
franchise without the need of filing a separate application for the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged
in the land transportation business with PUB service for passengers and freight and various certificates for
public conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On
March 27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting
authority to lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a
ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company buses and
freight trucks that have to cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed
by MARINA that it cannot give due course to the request on the basis of the following observations:
1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San
Pablo; MARINA policies on interisland shipping restrict the entry of new operators to Liner
trade routes where these are adequately serviced by existing/authorized operators.
2. Market conditions in the proposed route cannot support the entry of additional tonnage;
vessel acquisitions intended for operations therein are necessarily limited to those intended
for replacement purposes only. 2
PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It
wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a
ferry service to carry its passenger buses and freight trucks between Allen and Matnog in connection with its
trips to Tacloban City invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that
it can operate a ferry service in connection with its franchise for bus operation in the highway from Pasay City
to Tacloban City "for the purpose of continuing the highway, which is interrupted by a small body of water, the
said proposed ferry operation is merely a necessary and incidental service to its main service and obligation of
transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain
a separate certificate for public convenience to operate a ferry service between Allen and Matnog to cater
exclusively to its passenger buses and freight trucks.4
Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose
C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1,
1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double"
otherwise it will be cited to show cause why its CPC should not be suspended or the pending application
denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise
holders of the ferry service in this area interposed their opposition. They claim they adequately service the
PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister
of Justice whether or not a bus company with an existing CPC between Pasay City and Tacloban City may still
be required to secure another certificate in order to operate a ferry service between two terminals of a small
body of water. On October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that
there is no need for bus operators to secure a separate CPC to operate a ferryboat service holding as follows:
Further, a common carrier which has been granted a certificate of public convenience is
expected to provide efficient, convenient and adequate service to the riding public. (Hocking
Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs.
Railroad Commissioners, 58 SO 543) It is the right of the public which has accepted the
service of a public utility operator to demand that the service should be conducted with
reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus, when the bus
company in the case at bar proposes to add a ferry service to its Pasay Tacloban route, it
merely does so in the discharge of its duty under its current certificate of public
convenience to provide adequate and convenient service to its riders. Requiring said bus
company to obtain another certificate to operate such ferry service when it merely forms a
part and constitutes an improvement of its existing transportation service would
simply be duplicitous and superfluous. 7
Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to
operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise:
Let the original Certificate of public convenience granted to Pantranco South Express Co.,
Inc. be amended to embody the grant of authority to operate a private ferry boat service as
one of the conditions for the grant of the certificate subject to the condition that the
ferryboat shall be for the exclusive use of Pantranco buses, its passengers and freight trucks,
and should it offer itself to the public for hire other than its own passengers, it must apply
for a separate certificate of public convenience as a public ferry boat service, separate and
distinct from its land transport systems. 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said
decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July
21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary
injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the issuance
of a restraining order or preliminary injunction against the operation by PANTRANCO of said ferry service. San
Pablo raised the following issues:
A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE
RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT
ISSUED IN A COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU
PROPIO AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND
AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON
ALLEN, SAMAR EVEN AS THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT
AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER?
B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981,
THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT
OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY
OR CONTINUATION OF THE HIGHWAY IT BEING 23 KILOMETERS OF ROUGH AND OPEN
SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT
MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?
C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT
PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A
PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN
SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS
FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A
LIMITED CLIENTELE?
D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S
CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN
SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY
AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM
CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY
 SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT MARINA AGREEMENT OF
AUGUST 10, 1976 AND FEBRUARY 26, 1982?
E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO
AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF
NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS
PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF
PRIOR OPERATOR RULE'? 11
By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:
a. the decision did not conform to the procedures laid down by law for an amendment of the
original certificate of public convenience, and the authority to operate a private ferry boat
service to PANTRANCO was issued without ascertaining the established essential requisites
for such grant, hence, violative of due process requirements;
b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier
on said route contravenes existing government policies relative to the rationalization of
operations of all water transport utilities;
c. it contravenes the memorandum of agreement between MARINA and the Board of
Transportation; d. the grant of authority to operate a ferry service as a private carrier is not
feasible; it lessens PANTRANCO's liability to passengers and cargo to a degree less than
extraordinary diligence?
e. PANTRANCO is not a private carrier when it operates its ferry service;
f. it runs counter to the "old operator" doctrine; and
g. the operation by PANTRANCO of the ferry service cnstitutes undue competition.
The foregoing considerations constitutes the substantial errors committed by the
respondent Board which would more than amply justify review of the questioned decision
by this Honorable Court.12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the
authority originally granted PANTRANCO in the following manner:
A ferry service, in law, is treated as a continuation of the highway from one side of the water
over which passes to the other side for transportation of passengers or of travellers with
their teams vehicles and such other property as, they may carry or have with them. (U.S. vs.
Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary
service of a specially constructed boat to carry passengers and property across rivers or
bodies of water from a place in one shore to a point conveniently opposite on the other
shore and continuation of the highway making a connection with the thoroughfare at each
terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege
of transportation but also the use for that purpose of the respective landings with outlets
therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry
or a private ferry. A public ferry service is one which all the public have the right to resort to
and for which a regular fare is established and the ferryman is a common carrier be
inbound to take an who apply and bound to keep his ferry in operation and good repair.
(Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of
the owner and though he may take pay for ferriage, he does not follow it as a business. His
ferry is not open to the public at its demand and he may or may not keep it in operation
(Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215
S.W. 698).
The ferry boat service of Pantranco is a continuation of the highway traversed by its buses
from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through San
Bernardino Strait to Alien (Samar). It is a private carrier because it will be used exclusively
to transport its own buses, passengers and freight trucks traversing the said route. It will
cater exclusively to the needs of its own clientele (passengers on board- Pantranco buses)
and will not offer itself indiscriminately for hire or for compensation to the general public.
Legally therefore, Pantranco has the right to operate the ferry boat M/V BLACK DOUBLE,
along the route from Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive
use of its own buses, passengers and freight trucks without the need of applying for a
separate certificate of public convenience or provisional authority. Since its operation is an
integral part of its land transport system, its original certificate of public convenience
should be amended to include the operation of such ferryboat for its own exclusive use
In Javellana 14 this Court recited the following definition of ferry :
The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or
the connection of highways located on the opposite banks of a stream or other body of water.
The term necessarily implies transportation for a short distance, almost invariably between
two points, which is unrelated to other transportation .(Emphasis supplied)
The term "ferry" is often employed to denote the right or franchise granted by the state or
its authorized mandatories to continue by means of boats, an interrupted land highway
over the interrupting waters and to charge toll for the use thereof by the public. In this
sense it has also been defined as a privilege, a liberty, to take tolls for transporting
passengers and goods across a lake or stream or some other body of water, with no essential
difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553.
A "ferry" has been defined by many courts as "a public highway or thoroughfare across a
stream of water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and
Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.)
The term ferry is often employed to denote the right or franchise granted by the state or its
authorized mandatories to continue by means of boats, an interrupted land highway over
the interrupting waters and to charge toll for the use thereof by the public. (Vallejo Ferry
Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis
supplied)
"Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or
bay.(U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)'
"Ferry" properly means a place of transit across a river or arm of the sea, but in law it is
treated as a franchise, and defined as the exclusive right to carry passengers across a river,
or arm of the sea, from one vill to another, or to connect a continuous line of road leading
from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)'
Includes various waters: (1) But an arm of the sea may include various subordinate
descriptions of waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin,
or bay; and it is sometimes used to designate very extensive reaches of waters within the
projecting capes or points or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early
case the court said: "The distinction between rivers navigable and not navigable, that is,
where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441,
99 Reprint 283. The former are called arms of the sea, while the latter pass under the
denomination of private or inland rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis
supplied)
In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of
Gattaran vs. Elizaga 17this Court considered as ferry service such water service that crosses rivers.
However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service
by holding that:
We are not unmindful of the reasons adduced by the Commission in considering the
motorboat service between Calapan and Batangas as ferry; but from our consideration of
the law as it stands, particularly Commonwealth Act No. 146, known as the Public Service
Act and the provisions of the Revised Administrative Code regarding municipal ferries and
those regarding the jurisdiction of the Bureau of Customs over documentation, registration,
licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of
ferry as above quoted we have the impression andwe are inclined to believe that the
Legislature intended ferry to mean the service either by barges or rafts, even by motor or
steam vessels, between the banks of a river or stream to continue the highway which is
interrupted by the body of water, or in some cases to connect two points on opposite shores of
an arm of the sea such as bay or lake which does not involve too great a distance or too long a
 time to navigate But where the line or service involves crossing the open sea like the body of
water between the province of Batangas and the island of Mindoro which the oppositors
describe thus "the intervening waters between Calapan and Batangas are wide and
dangerous with big waves where small boat barge, or raft are not adapted to the service,"
then it is more reasonable to regard said line or service as more properly belonging to
interisland or coastwise trade. According to the finding of the Commission itself the distance
between Calapan is about 24 nautical miles or about 44.5 kilometers. We do not believe that
this is the short distance contemplated by the Legislature in referring to ferries whether
within the jurisdiction of a single municipality or ferries between two municipalities or
provinces. If we are to grant that water transportation between Calapan and Batangas is
ferry service, then there would be no reason for not considering the same service between
the different islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City
of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao,
Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in the
coastwise trade, thus:
A ferry service is distinguished from a motorship or motorboat service engaged in the
coastwise trade in that the latter is intended for the transportation of passengers and/or
freight for hire or compensation between ports or places in the Philippines without definite
routes or lines of service.
We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of
say the William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete,
Zamboanga, every week. It has a definite route, and yet it may not for that reason be
regarded as engaged in ferry service. Again, a vessel of the Compania Maritima makes the
trip from Manila to Tacloban and back, twice a week. Certainly, it has a definite route. But
that service is not ferry service, but rather interisland or coastwise trade.
We believe that it will be more in consonance with the spirit of the law to consider steamboat
or motorboat service between the different islands, involving more or less great distance and
over more or less turbulent and dangerous waters of the open sea, to be coastwise or inter-
island service. Anyway, whether said service between the different islands is regarded as
ferry service or coastwise trade service, as long as the water craft used are steamboats,
motorboats or motor vessels, the result will be the same as far as the Commission is
concerned. " 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that
Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen
which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads
towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23
kilometers which maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent
PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which separates Matnog and
Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to navigate the same by
small boats or barges but only by such steamboats or vessels as the MV "Black Double. 19
Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from
Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no
circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a
ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes,
which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog
and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent
PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in
accordance with the provisions of law. Its CPC as a bus transportation cannot be merely amended to include
this water service under the guise that it is a mere private ferry service.
The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as
a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd.
PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and
issues separate tickets whenever they board the MV "Black Double" that crosses Matnog to
Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and
not as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a
private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between
Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What is even more difficult to
comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as
the ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its
obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its
passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a
private ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers
and cargo. Such an anomalous situation that will jeopardize the safety and interests of its passengers and the
cargo owners cannot be allowed.
What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat
service between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase
the vessel M/V "Black Double 22 in accordance with the procedure provided for by law for such application for
a certificate of public convenience. 23 However when its request was denied as the said routes "are adequately
serviced by existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the
same. Obviously to go about this obstacle to its operation, it then contrived a novel theory that what it
proposes to operate is a private ferryboat service across a small body of water for the exclusive use of its buses,
trucks and passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City
to Tacloban so that it believes it need not secure a separate certificate of public convenience. 25 Based on this
representation, no less than the Secretary of Justice was led to render an affirmative opinion on October 20,
1981, 26 followed a few days later by the questioned decision of public respondent of October 23,
1981. 27 Certainly the Court cannot give its imprimatur to such a situation.
Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but
a coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the
operation of the said service as a common carrier, it must comply with the usual requirements of filing an
application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the
opportunity to be heard, among others, as provided by law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation
(BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the same case denying
the motions for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and
void. Respondent PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or
coastwise/interisland services between Matnog and Allen until it shall have secured the appropriate
Certificate of Public Convenience (CPC) in accordance with the requirements of the law, with costs against
respondent PANTRANCO.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31056 August 4, 1988
LUCILA O. MANZANAL, petitioner,
vs.
MAURO A. AUSEJO and PUBLIC SERVICE COMMISSION, respondents.
Pastor C. Bacani and Rogelio E. Subong for petitioner.
Mauro A. Ausejo for and in his own behalf.
Leonor S. Saplala for public respondent.
MEDIALDEA, J.:
This is a petition for review on certiorari of the orders of the Public Service Commission dated June 30, 1967
and September 1, 1969 in PSC Case No. 66-20-OC, entitled "Mauro A. Ausejo, Complainant, vs. Lucila O.
Manzanal, Respondent," wherein the certificate of public convenience to operate a taxicab service in Manila
and suburbs of herein petitioner Lucila O. Manzanal was cancelled and revoked and her third motion for
reconsideration was denied.
The case stemmed from the affidavit of Mauro A. Ausejo, with the Complaint, Investigation and Enforcement
Office (CIEO) of the Public Service Commission narrating a hold up incident on March 13, 1966. In this
affidavit, he implicated a taxicab unit whose plate number was said to be "6100" and which was allegedly
boarded by three (3) robbers as they escaped from Roxas Boulevard in front of the L & S Building at about 6:00
a.m. of March 13, 1966, after affiant and a companion, Mr. Jose Caballes were accosted and held-up. On the
basis of this affidavit, respondent Commission issued a "Show-Cause Order" dated May 25, 1966 upon
petitioner, to wit:
... respondent (Petitioner Manzanal) is hereby ordered to appeal before this Commission, on
this 24th day of June, 1966, at 9:00 o'clock in the morning to show cause why her certificate
of public convenience issued under Case No. 62-4503 should not be cancelled for not
rendering safe, adequate and proper service by employing a driver with criminal
tendencies, in violation of Section 19 (a) of the Public Service Law and Section 47 of the
Revised Order No. 1 of this Commission.
Failure on the part of the respondent to appear at the hearing set will be considered as a
waiver of her right to be heard and this Commission will decide the case on its merits. (Page
13, Rollo)
From October 10, 1966 to March 20, 1967, trial was conducted by the respondent Public Service Commission.
Mr. Ausejo and Mr. Caballes both narrated the alleged hold-up incident as follows: Both were strolling along
the seasided embankment of Dewey or Roxas Boulevard at about 6:00 o'clock in the morning of March 13,
1966 towards the direction of Pasay City. As they were in front of the L & S Building, they noticed that the
three (3) men alighted from a vehicle behind them. Immediately thereafter, these men accosted and held-up
both of them. Since the two offered some resistance, they attracted the attention of other promenaders as well
as the attention of about twelve passing motorists who stopped to watch the spectacle, Two of the hold-uppers
went after Mr. Caballes and the other one took care of Mr. Ausejo who fought back and succeeded in disarming
the hold-uppers of his knife. He then drew his pistol and tried to shoot him but it jammed. As the two other
hold-uppers ran towards his direction, presumably to assist their companion, they were warned that Mr.
Ausejo had a gun and so they stopped and rushed instead to a waiting taxi bearing Plate No. 6100.
At the trial, Mr. Caballes testified that the taxi was red in the entire body while private respondent Ausejo said
that the taxi was red and it had parts painted blue. Both however said that the plate color was orange.
On the part of petitioner, Manzanal, she submitted documents disputing the possibility that the taxicab in
question was hers. She submitted the decision of the PSC in Case No. 65-2149 where it appears that the
commercial name of the taxi is Crisman Taxi and that the color is "red top with emerald green body" and two
certifications to the effect that the color of the plate in 1965 was white with maroon background.
On June 30, 1967, the Public Service Commissioner Enrique Medina issued an order deploring the fact that the
respondent did not file a formal answer or explanation. The Commission found that (a) there was no motive on
the part of the said witnesses for the complainant to testify against the operator or against the driver of taxi
with Plate No. 61 00; (b) the attention of the witnesses was concentrated on the number of the registration
plate and it is understandable that they paid little or no attention at all to the colors; and (c) the conduct of the
operator gave the impression that instead of applying a strong arm against the erring driver, she has tried to
protect and shield him.
Accordingly, respondent Commission considered the charges proven since the hold-up incident was duly
established and ordered the certificate of public convenience issued in Case No. 62-4503, for five units revoked
and cancelled.
Upon denial of her three motions for reconsideration, she filed this petition for review on certiorari assigning
these errors:
I. The Respondent Commission erred in cancelling and revoking the certificate of petitioner
Manzanal on charges of failure to render safe, proper and adequate service under Section.
19 (a) of the Public Service Act as amended and for employing a driver with criminal record
under Sec. 47 of the Revised Order No. 1, as there was absolutely no evidence whatever
presented to prove such charges.
II. The respondent Commission erred when it cancelled and revoked the certificate of
petitioner Manzanal simply because one of her taxicab units allegedly got involved in a
hold-up incident when some, hold-uppers allegedly boarded the same while escaping since
this circumstance is not one of the grounds for cancellation.
III. The respondent Commission erred in finding petitioner Manzanal guilty of protecting
and shielding the driver of the taxicab unit in question by not letting him testify and not
taking disciplinary action against him, in the face of absolute absence of evidence to support
such findings.
Petitioner included in her petition a prayer for the issuance of a preliminary mandatory injunction to allow
petitioner to resume operations during the pendency of this petition and to enjoin respondent Commission
from snowing another to appropriate her certificate and/or line. She reiterated this prayer in a motion dated
January 9, 1970. On February 16, 1970, this Court issued a writ of preliminary injunction upon petitioner
posting a bond of P1,000.00 by allowing her to resume operations and at the same time enjoining the
operations of Yolanda Escolin , whose application for "appropriation" was granted in PSC Case No. 68-9712.
Upon motion of said Yolanda Escolin, this Court allowed her to intervene and lifted the preliminary injunction
issued upon her filing a bond of P5,000.00. However, on June 23, 1970, this Court modified the order lifting the
writ so that the first part thereof allowing petitioner to resume operation of her taxicab service is deemed
excluded from said order of lifting.
Respondent Public Service Commission filed an answer to the petition stating that the cancellation of
petitioner's certificate was warranted by the evidence adduced during the hearing pointing to the fact that the
petitioner's driver was conclusively involved in the hold-up.
Private respondent Mauro A. Ausejo on the other hand, manifested that he has chosen not to file an answer to
the petition. He, however, filed his comment to petitioner's motion reiterating the prayer for the issuance of a
writ of preliminary injunction. He affirmed therein the presence of Felicisimo M. Valdez the driver of taxicab
No. 6100 during the hearings but stated, that he could not be sure then as to whether he was the driver of the
vehicle used by the hold-uppers. He likewise stated that he executed an affidavit dated January 5, 1970 to the
effect that the sole purpose of his complaint before the Public Service Commission was merely to verify the
driver of the taxi then bearing Plate No. 6100 so said driver could help the police in the apprehension and
prosecution of the hold-uppers and that in view of the death of said driver during the pendency of the
investigation, he is wining to forget everything.
We find the petition impressed with merit and agree with petitioner that the charges lodged against her have
not been duly proved. The respondent Public Service Commission anchors the charges against petitioner on
the following provisions, to wit:
Section 19. Unlawful acts. It shall be unlawful for any public service:
(a) to provide or maintain any service that is unsafe, improper, or inadequate, or withhold
or refine any service which can reasonably be demanded and furnished, as found and
determined by the Commission in a final order which shall be conclusive and shall take
effect in accordance with this Act upon appeal or otherwise. (The Public Service Act, as
amended)
 Section 47. Courtesy, character, record, etc. Each operator shag employ only such
chauffeurs, conductors, agents, inspectors, auditors, and other employees who are
courteous and of good moral character, and in no case shall he employ any person who has
been convicted by competent court of homicide and/or serious physical injuries, theft,
estafa, robbery, and crimes against chastity. Operators are prohibited from employing as
chauffeurs persons who do not have professional drivers" license. (Revised Order No. 1)
Section 19 (a) of the Public Service Act contemplates of failure to provide a service that is safe, proper or
adequate and refusal to render any service which can reasonably be demanded and furnished. It refers
specifically to the operator's inability to provide reliable vehicles to transport the riding public to their places
of destination and to the failure to provide an adequate number of units authorized under his franchise at all
times to secure the public of sustained service. While the words "unsafe, inadequate and improper" may be
broad enough to cover a lot of things, they must be interpreted in consonance with the purpose of the Public
Service Law, which was specifically enacted, among other things, to protect the public against unreasonable
charges and poor inefficient service (Luzon Stevedoring Co., Inc. vs. PSC, 93 Phil. 735) and to secure adequate
sustained service for the public at the least possible costs. (Batangas Transportation Co. vs. Orlanes, 52 Phil.
455). The facts of the case are bereft and wanting of any evidence to the effect that petitioner rendered a
service that is unsafe, inadequate and improper. There was no testimony whatsoever that her vehicles are of
such kind which may endanger the lives of the passengers or are not suitable for the peculiar characteristics of
the area serviced. There is no proof that petitioner is not in a position to cope with the obligations and
responsibilities of the service and to maintain a complete number of units as authorized. While we agree with
respondent Commission that said provision does not necessarily require a "passenger-operator" relationship,
We disagree that a single hold-up incident which does not clearly link petition's taxicab can be comprehended
within its meaning.
Section 47 of the Revised Order No. 1, on the other hand, refers to the kind of persons an operator must keep
under his employ, namely: courteous, of good moral character and no record of criminal conviction. Contrary
to the claim of petitioner, this restriction equally applies to those who are already employed as well as those
merely seeking admission to the service. (Pangasinan Transportation Co. vs. CIR, L-9736, May 20, 1957, 101
Phil. 480) The reason behind this requirement of courtesy and good moral character cannot be assailed and is
understandable. A public service operator deals directly with the patronizing community and the nature of
such undertaking necessarily demands of the company the maintenance of a personnel with unquestionable
record of good moral character for the public entrust their lives, properties and interests in said services and
deserve utmost courtesy, efficiency and safety in return. (Ibid.) But nowhere in the presentation of the facts of
the case was there any proof that petitioner violated this provision. There is no proof that she has hired a
driver with criminal record or bad moral character or has kept under her employ, such driver despite
knowledge about his moral behavior, discourteous conduct or criminal record. Besides, the show cause order
merely speaks of employing a driver with "criminal tendencies" while Section 47 is couched in unmistakable
mandatory terms; it forbids the employment of persons "convicted" of offenses enumerated therein.
All that was proved during the investigation was the hold-up incident of March 13, 1966. But proof of the hold-
up incident is not proof of the charges under Section 19 (a) of the Public Service Law and Sec. 47 of the Revised
Order No. 17. Most importantly, even the precise Identity of the taxicab boarded by the hold-uppers as they
escaped had not been established. The only testimony linking the taxicab of petitioner was that of the
companion of private respondent Ausejo that he saw the malefactors scamper away and seize a taxi whose
plate number was "6100". With respect to the description of the alleged taxi, he said that the taxi was red in
the entire body while private respondent Ausejo said that the taxi was red and it had parts painted blue. Both
confirmed each other that the plate color was orange.
We find that petitioner has successfully refuted the alleged participation of her taxi. The decision dated
December 28, 1965 of respondent Commission granting her petition for approval of her color scheme which
authorized all her five (5) units to be painted with emerald green; the certification of Mr. Pedro Morales of the
Land Transportation Commission, Chief of the Plate Section, to the effect that the plates for taxis for 1965 have
a maroon background; and the certification of Mr. Marcelo Vasquez of the Vasquez Bros. & Co., Inc., the makers
of vehicle plates for the Land Transportation Commission that the orange colored plates are given to privately
owned vehicles and that No. 6100 has been given to both taxis and privately owned vehicles all cast a cloud of
doubt on the real Identity of the vehicle used by the malefactors.
Even on the assumption that it was petitioner's taxicab that was used by the escaping hold-uppers, there is no
evidence that the driver is a co-conspirator in the commission of the offense of robbery. Conspiracy must be
proved by clear and convincing evidence. The mere claim that the taxicab was there and probably waiting is
not proof of conspiracy in this case as it should be recalled that there were about twelve vehicles that stopped
to view the spectacle. Further, it is possible that the driver did not act voluntarily as no person in his right
senses would defy the wishes of armed passengers. Even on the assumption that the driver had participated
voluntarily in the incident, his culpability should not be made a ground for the cancellation of the certificate of
petitioner. While an employer may be subsidiarily liable for the employee's civil liability in a criminal action,
subsidiary liability presupposes that there was a criminal action. Besides, in order that an employer may be
subsidiarily liable, it should be shown that the employee committed the offense in the discharge of his duties.
While it is true also that an employer may be primarily liable under Article 2180 of the Civil Code for the acts
or omissions of persons for whom one is responsible, this liability extends only to damages caused by his
employees acting within the scope of their assigned tasks. Clearly, the act in question is totally alien to the
business of petitioner as an operator and hence, the driver's illicit act is not within the scope of the functions
entrusted to him. Moreover, the action before respondent Commission is neither a criminal prosecution nor an
action for quasi-delict. Hence, there is absolutely no ground to hold petitioner liable for the driver's act.
Finally, under Section 16 (n) of the Public Service Act, the power of the Commission to suspend or revoke any
certificate received under the provisions of the Act may only be exercised whenever the holder thereof has
violated or willfully and contumaciously refused to comply with any order, rule or regulation of the
Commission or any provision of the Act. In the absence of showing that there is willful and contumacious
violation on the part of petitioner, no certificate of public convenience may be validly revoked.
The following are some instances where the cancellation of a certificate of public convenience where held
valid: (1) where the holder is a mere dummy (Pecson vs. Pecson, 78 Phil. 522); (2) where the operator ceased
operation and placed his buses on storage (Parades vs. Public Service Commission, L-7111, May 30, 1955); and
(3) where the operator abandons, totally the service (Collector vs. Buan, L-11438, July 31, 1958; Regodon vs.
Public Service Commission, L-11899, Sept. 23, 1958; Paez vs. Marcelo, L-1530, March 30, 1962). None of the
willful acts in patent violation of the Public Service Law can be attributed to petitioner herein.
Apropos, We find the respondent Commission's finding that the circumstances surrounding the case, specially
the conduct of petitioner, gave the impression that the petitioner instead of applying a strong arm against the
erring driver has tried to protect and shield him has no basis in fact. While the rule is that the commission's
findings of fact, if supported by substantial evidence, are conclusive upon this Court, We are authorized to
modify or ignore them when it clearly appears that there is no evidence to support reasonably such
conclusion. (Javellana vs. La Paz Ice Plant & Cold Storage Co., 63 Phil. 621; Philippine Shipowners Association
vs. Public Utility Commissioner, 43 Phil. 328; San Miguel Brewery vs. Lapid, 53 Phil. 539; Ice & Cold Storage
Industries of the Phil., Inc. vs. Valero, 85 Phil. 7; Halili vs. Daplas, 14 SCRA 14)
In the case at bar, it has been duly established that the driver of the taxicab, Felicisimo M. Valdez, was always
present during the initial hearings of this case before his death on September 18, 1966. This fact is indicative of
his willingness to take the witness stand but death sealed his lips. For her part, petitioner explained that she
did not testify because she was candid enough not to pretend to know the exact whereabouts of her taxi at the
fateful time. Hence, the conclusion of respondent Commission that she tried to protect or shield her driver by
her refusal to refute or deny the claim of respondent Ausejo and Mr. Caballes is not warranted by the facts of
the case.
ACCORDINGLY, the instant petition for review is hereby GRANTED and the decision of respondent Public
Service Commission (now Land Transportation Franchising and Regulatory Board [LTFRB]) dated June 30,
1967 cancelling and revoking the certificate of public convenience of petitioner to operate a taxicab service in
Manila for five (5) units under Case No. 62-4503 as well as the order denying the motion for reconsideration
are hereby REVERSED and SET ASIDE.
SO ORDERED.
Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 100727 March 18, 1992
COGEO-CUBAO OPERATORS AND DRIVERS ASSOCIATION, petitioner,
vs.
THE COURT OF APPEALS, LUNGSOD SILANGAN TRANSPORT SERVICES, CORP., INC., respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed with
modification the decision of the Regional Trial Court awarding damages in favor of respondent Lungsod
Silangan Transport Services Corp., Inc. (Lungsod Corp. for brevity).
The antecedents facts of this case are as follows:
It appears that a certificate of public convenience to operate a jeepney service was ordered
to be issued in favor of Lungsod Silangan to ply the Cogeo-Cubao route sometime in 1983 on
the justification that public necessity and convenience will best be served, and in the
absence of existing authorized operators on the lined apply for . . . On the other hand,
defendant-Association was registered as a non-stock, non-profit organization with the
Securities and Exchange Commission on October 30, 1985 . . . with the main purpose of
representing plaintiff-appellee for whatever contract and/or agreement it will have
regarding the ownership of units, and the like, of the members of the Association . . .
Perturbed by plaintiffs' Board Resolution No. 9 . . . adopting a Bandera' System under which
a member of the cooperative is permitted to queue for passenger at the disputed pathway in
exchange for the ticket worth twenty pesos, the proceeds of which shall be utilized for
Christmas programs of the drivers and other benefits, and on the strength of defendants'
registration as a collective body with the Securities and Exchange Commission, defendants-
appellants, led by Romeo Oliva decided to form a human barricade on November 11, 1985
and assumed the dispatching of passenger jeepneys . . . This development as initiated by
defendants-appellants gave rise to the suit for damages.
Defendant-Association's Answer contained vehement denials to the insinuation of take over
and at the same time raised as a defense the circumstance that the organization was formed
not to compete with plaintiff-cooperative. It, however, admitted that it is not authorized to
transport passengers . . . (pp. 15-16, Rollo)
On July 31, 1989, the trial court rendered a decision in favor of respondent Lungsod Corp., the dispositive
portion of which states:
WHEREFORE FROM THE FOREGOING CONSIDERATION, the Court hereby renders
judgment in favor of the plaintiff and against the defendants as follows:
1. Ordering defendants to pay plaintiff the amount of P50,000.00 as actual damages;
2. Ordering the defendants to pay the plaintiffs the amount of P10,000.00 as attorney's fees.
SO ORDERED. (P. 39, Rollo)
Not satisfied with the decision, petitioner Association appealed with the Court of Appeals. On May 27, 1991,
respondent appellate court rendered its decision affirming the findings of the trial court except with regard to
the award of actual damages in the amount of P50,000.00 and attorney's fees in the amount of P10,000.00. The
Court of Appeals however, awarded nominal damages to petitioner in the amount of P10,000.00.
Hence, this petition was filed with the petitioner assigning the following errors of the appellate court:
I. THE RESPONDENT COURT ERRED IN MERELY MODIFYING THE JUDGMENT OF THE
TRIAL COURT.
II. THE RESPONDENT COURT ERRED IN HOLDING THAT THE PETITIONER USURPED THE
PROPERTY RIGHT OF THE PRIVATE RESPONDENT.
III. AND THE RESPONDENT COURT ERRED IN DENYING THE MOTION FOR
RECONSIDERATION.
Since the assigned errors are interrelated, this Court shall discuss them jointly. The main issue raised by the
petitioner is whether or not the petitioner usurped the property right of the respondent which shall entitle the
latter to the award of nominal damages.
Petitioner contends that the association was formed not to complete with the respondent corporation in the
latter's operation as a common carrier; that the same was organized for the common protection of drivers
from abusive traffic officers who extort money from them, and for the elimination of the practice of respondent
corporation of requiring jeepney owners to execute deed of sale in favor of the corporation to show that the
latter is the owner of the jeeps under its certificate of public convenience. Petitioner also argues that in
organizing the association, the members thereof are merely exercising their freedom or right to redress their
grievances.
We find the petition devoid of merit.
Under the Public Service Law, a certificate of public convenience is an authorization issued by the Public
Service Commission for the operation of public services for which no franchise is required by law. In the
instant case, a certificate of public convenience was issued to respondent corporation on January 24, 1983 to
operate a public utility jeepney service on the Cogeo-Cubao route. As found by the trial court, the certificate
was issued pursuant to a decision passed by the Board of Transportation in BOT Case No. 82-565.
A certification of public convenience is included in the term "property" in the broad sense of the term. Under
the Public Service Law, a certificate of public convenience can be sold by the holder thereof because it has
considerable material value and is considered as valuable asset (Raymundo v. Luneta Motor Co., et al., 58 Phil.
889). Although there is no doubt that it is private property, it is affected with a public interest and must be
submitted to the control of the government for the common good (Pangasinan Transportation Co. v. PSC, 70
Phil 221). Hence, insofar as the interest of the State is involved, a certificate of public convenience does not
confer upon the holder any proprietary right or interest or franchise in the route covered thereby and in the
public highways (Lugue v. Villegas, L-22545, Nov . 28, 1969, 30 SCRA 409). However, with respect to other
persons and other public utilities, a certificate of public convenience as property, which represents the right
and authority to operate its facilities for public service, cannot be taken or interfered with without due process
of law. Appropriate actions may be maintained in courts by the holder of the certificate against those who have
not been authorized to operate in competition with the former and those who invade the rights which the
former has pursuant to the authority granted by the Public Service Commission (A.L. Ammen Transportation
Co. v. Golingco. 43 Phil. 280).
In the case at bar, the trial court found that petitioner association forcibly took over the operation of the
jeepney service in the Cogeo-Cubao route without any authorization from the Public Service Commission and
in violation of the right of respondent corporation to operate its services in the said route under its certificate
of public convenience. These were its findings which were affirmed by the appellate court:
The Court from the testimony of plaintiff's witnesses as well as the documentary evidences
presented is convinced that the actions taken by defendant herein though it admit that it did
not have the authority to transport passenger did in fact assume the role as a common
carrier engaged in the transport of passengers within that span of ten days beginning
November 11, 1985 when it unilaterally took upon itself the operation and dispatching of
jeepneys at St. Mary's St. The president of the defendant corporation. Romeo Oliva himself
in his testimony confirmed that there was indeed a takeover of the operations at St. Mary's
St. . . . (p. 36, Rollo)
The findings of the trial court especially if affirmed by the appellate court bear great weight and will not be
disturbed on appeal before this Court. Although there is no question that petitioner can exercise their
constitutional right to redress their grievances with respondent Lungsod Corp., the manner by which this
constitutional right is to be, exercised should not undermine public peace and order nor should it violate the
legal rights of other persons. Article 21 of the Civil Code provides that any person who wilfully causes loss or
injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the
latter for the damage. The provision covers a situation where a person has a legal right which was violated by
another in a manner contrary to morals, good customs or public policy. It presupposes loss or injury, material
or otherwise, which one may suffer as a result of such violation. It is clear form the facts of this case that
petitioner formed a barricade and forcibly took over the motor units and personnel of the respondent
corporation. This paralyzed the usual activities and earnings of the latter during the period of ten days and
violated the right of respondent Lungsod Corp. To conduct its operations thru its authorized officers.
As to the propriety of damages in favor of respondent Lungsod Corp., the respondent appellate court stated:
. . . it does not necessarily follow that plaintiff-appellee is entitled to actual damages and
attorney's fees. While there may have been allegations from plaintiff-cooperative showing
that it did in fact suffer some from of injury . . . it is legally unprecise to order the payment of
P50,000.00 as actual damages for lack of concrete proof therefor. There is, however, no
denying of the act of usurpation by defendants-appellants which constituted an invasion of
plaintiffs'-appellees' property right. For this, nominal damages in the amount of P10,000.00
may be granted. (Article 2221, Civil Code). (p. 18,Rollo)
No compelling reason exists to justify the reversal of the ruling of the respondent appellate court in the case at
bar. Article 2222 of the Civil Code states that the court may award nominal damages in every obligation arising
from any source enumerated in Article 1157, or in every case where any property right has been invaded.
Considering the circumstances of the case, the respondent corporation is entitled to the award of nominal
damages.
ACCORDINGLY, the petition is DENIED and the assailed decision of the respondent appellate court dated May
27, 1991 is AFFIRMED.
SO ORDERED.
Narvasa, C.J., Cruz and Grio-Aquino, JJ., concur.
Bellosillo, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 115381 December 23, 1994
KILUSANG MAYO UNO LABOR CENTER, petitioner,
vs.
HON. JESUS B. GARCIA, JR., the LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and
the PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES, respondents.
Potenciano A. Flores for petitioner.
Robert Anthony C. Sison, Cesar B. Brillantes and Jose Z. Galsim for private respondent.
Jose F. Miravite for movants.
KAPUNAN, J.:
Public utilities are privately owned and operated businesses whose service are essential to the general public.
They are enterprises which specially cater to the needs of the public and conduce to their comfort and
convenience. As such, public utility services are impressed with public interest and concern. The same is true
with respect to the business of common carrier which holds such a peculiar relation to the public interest that
there is superinduced upon it the right of public regulation when private properties are affected with public
interest, hence, they cease to be juris privati only. When, therefore, one devotes his property to a use in which
the public has an interest, he, in effect grants to the public an interest in that use, and must submit to the
control by the public for the common good, to the extent of the interest he has thus created. 1
An abdication of the licensing and regulatory government agencies of their functions as the instant petition
seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to public
trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars
and/or orders of the Department of Transportation and Communications (DOTC) and the Land Transportation
Franchising and Regulatory Board LTFRB)2 which, among others, (a) authorize provincial bus and jeepney
operators to increase or decrease the prescribed transportation fares without application therefor with the
LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c) of Commonwealth
Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation of LTFRB's duty to fix
and determine just and reasonable fares by delegating that function to bus operators, and (b) establish a
presumption of public need in favor of applicants for certificates of public convenience (CPC) and place on the
oppositor the burden of proving that there is no need for the proposed service, in patent violation not only of
Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act mandating that fares should be "just
and reasonable." It is, likewise, violative of the Rules of Court which places upon each party the burden to
prove his own affirmative allegations.3 The offending provisions contained in the questioned issuances pointed
out by petitioner, have resulted in the introduction into our highways and thoroughfares thousands of old and
smoke-belching buses, many of which are right-hand driven, and have exposed our consumers to the burden of
spiraling costs of public transportation without hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a)
DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range scheme
for provincial bus services in the country; (b) DOTC Department Order No.
92-587, dated March 30, 1992, defining the policy framework on the regulation of transport services; (c) DOTC
Memorandum dated October 8, 1992, laying down rules and procedures to implement Department Order No.
92-587; (d) LTFRB Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC
Department Order No. 92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990; then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to then
LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers rates within
a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The text of the
memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set
out in the Medium-Term Philippine Development Plan (MTPDP) 1987 1992) is the
liberalization of regulations in the transport sector. Along this line, the Government intends
to move away gradually from regulatory policies and make progress towards greater
reliance on free market forces.
Based on several surveys and observations, bus companies are already charging passenger
rates above and below the official fare declared by LTFRB on many provincial routes. It is in
this context that some form of liberalization on public transport fares is to be tested on a
pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme
for all provincial bus routes in country (except those operating within Metro
Manila). Transport Operators shall be allowed to charge passengers within a range of fifteen
percent (15%) above and fifteen percent (15%) below the LTFRB official rate for a period of
one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination
with the DOTC Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando submitted
the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the
LTFRB received on 19 July 1990, directing the Board "to immediately publicize a fare range
scheme for all provincial bus routes in the country (except those operating within Metro
Manila)" that will allow operators "to charge passengers within a range of fifteen percent
(15%) above and fifteen percent (15%) below the LTFRB official rate for a period of one
year" the undersigned is respectfully adverting the Secretary's attention to the following for
his consideration:
1. Section 16(c) of the Public Service Act prescribes the following for the
fixing and determination of rates (a) the rates to be approved should
be proposed by public service operators; (b) there should be a
publication and notice to concerned or affected parties in the territory
affected; (c) a public hearing should be held for the fixing of the rates;
hence, implementation of the proposed fare range scheme on August 6
without complying with the requirements of the Public Service Act may
not be legally feasible.
2. To allow bus operators in the country to charge fares fifteen (15%)
above the present LTFRB fares in the wake of the devastation, death and
suffering caused by the July 16 earthquake will not be socially warranted
and will be politically unsound; most likely public criticism against the
DOTC and the LTFRB will be triggered by the untimely motu
propioimplementation of the proposal by the mere expedient of
publicizing the fare range scheme without calling a public hearing, which
scheme many as early as during the Secretary's predecessor know
through newspaper reports and columnists' comments to be Asian
Development Bank and World Bank inspired.
3. More than inducing a reduction in bus fares by fifteen percent (15%)
the implementation of the proposal will instead trigger an upward
adjustment in bus fares by fifteen percent (15%) at a time when
hundreds of thousands of people in Central and Northern Luzon,
particularly in Central Pangasinan, La Union, Baguio City, Nueva Ecija,
and the Cagayan Valley are suffering from the devastation and havoc
caused by the recent earthquake.
4. In lieu of the said proposal, the DOTC with its agencies involved in
public transportation can consider measures and reforms in the industry
 that will be socially uplifting, especially for the people in the areas 1. Entry into and exit out of the industry. Following the Constitutional dictum against
devastated by the recent earthquake. monopoly, no franchise holder shall be permitted to maintain a monopoly on any route. A
In view of the foregoing considerations, the undersigned respectfully suggests that the minimum of two franchise holders shall be permitted to operate on any route.
implementation of the proposed fare range scheme this year be further studied and The requirements to grant a certificate to operate, or certificate of public convenience, shall
evaluated. be: proof of Filipino citizenship, financial capability, public need, and sufficient insurance
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc. cover to protect the riding public.
(PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half centavos In determining public need, the presumption of need for a service shall be deemed in favor of
(P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of fifteen (15%) the applicant. The burden of proving that there is no need for a proposed service shall be with
percent over and below the proposed basic per kilometer fare rate, with the said minimum-maximum fare the oppositor(s).
range applying only to ordinary, first class and premium class buses and a fifty-centavo (P0.50) minimum per In the interest of providing efficient public transport services, the use of the "prior
kilometer fare for aircon buses, was sought. operator" and the "priority of filing" rules shall be discontinued. The route measured
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board capacity test or other similar tests of demand for vehicle/vessel fleet on any route shall be
increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the used only as a guide in weighing the merits of each franchise application and not as a limit
drop in the expected price of diesel. to the services offered.
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging that Where there are limitations in facilities, such as congested road space in urban areas, or at
the proposed rates were exorbitant and unreasonable and that the application contained no allegation on the airports and ports, the use of demand management measures in conformity with market
rate of return of the proposed increase in rates. principles may be considered.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in The right of an operator to leave the industry is recognized as a business decision, subject
accordance with the following schedule of fares on a straight computation method, viz: only to the filing of appropriate notice and following a phase-out period, to inform the
AUTHORIZED FARES public and to minimize disruption of services.
LUZON 2. Rate and Fare Setting. Freight rates shall be freed gradually from government
MIN. OF 5 KMS. SUCCEEDING KM. controls. Passenger fares shall also be deregulated, except for the lowest class of passenger
REGULAR P1.50 P0.37 service (normally third class passenger transport) for which the government will fix indicative
STUDENT P1.15 P0.28 or reference fares. Operators of particular services may fix their own fares within a range 15%
VISAYAS/MINDANAO above and below the indicative or reference rate.
REGULAR P1.60 P0.375 Where there is lack of effective competition for services, or on specific routes, or for the
STUDENT P1.20 P0.285 transport of particular commodities, maximum mandatory freight rates or passenger fares
FIRST CLASS (PER KM.) shall be set temporarily by the government pending actions to increase the level of
LUZON P0.385 competition.
VISAYAS/ For unserved or single operator routes, the government shall contract such services in the
MINDANAO P0.395 most advantageous terms to the public and the government, following public bids for the
PREMIERE CLASS (PER KM.) services. The advisability of bidding out the services or using other kinds of incentives on
LUZON P0.395 such routes shall be studied by the government.
VISAYAS/ 3. Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the
MINDANAO P0.405 government shall not engage in special financing and incentive programs, including direct
AIRCON (PER KM.) P0.415.4 subsidies for fleet acquisition and expansion. Only when the market situation warrants
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete Nicomedes government intervention shall programs of this type be considered. Existing programs shall
Prado issued Department Order No. be phased out gradually.
92-587 defining the policy framework on the regulation of transport services. The full text of the said order is The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board,
reproduced below in view of the importance of the provisions contained therein: the Maritime Industry Authority are hereby directed to submit to the Office of the Secretary,
WHEREAS, Executive Order No. 125 as amended, designates the Department of within forty-five (45) days of this Order, the detailed rules and procedures for the
Transportation and Communications (DOTC) as the primary policy, planning, regulating Implementation of the policies herein set forth. In the formulation of such rules, the
and implementing agency on transportation; concerned agencies shall be guided by the most recent studies on the subjects, such as the
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the Presidential
system, the transportation regulatory agencies under or attached to the DOTC have to Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate
harmonize their decisions and adopt a common philosophy and direction; Rationalization Study.
WHEREAS, the government proposes to build on the successful liberalization measures For the compliance of all concerned. (Emphasis ours)
pursued over the last five years and bring the transport sector nearer to a balanced longer On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications
term regulatory framework; Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on the
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid down
policies and principles in the economic regulation of land, air, and water transportation deregulation and other liberalization policies for the transport sector. Attached to the said memorandum was
services are hereby adopted: a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out of the Industry and (ii)
Rate and Fare Setting, with comments and suggestions from the World Bank incorporated therein. Likewise,
resplendent from the said memorandum is the statement of the DOTC Secretary that the adoption of the rules
and procedures is a pre-requisite to the approval of the Economic Integration Loan from the World Bank.5
On February 17, 1993, the LTFRB issued Memorandum Circular
No. 92-009 promulgating the guidelines for the implementation of DOTC Department Order No. 92-587. The
Circular provides, among others, the following challenged portions:
xxx xxx xxx
IV. Policy Guidelines on the Issuance of Certificate of Public Convenience.
The issuance of a Certificate of Public Convenience is determined by public need. The
presumption of public need for a service shall be deemed in favor of the applicant, while
burden of proving that there is no need for the proposed service shall be the oppositor'(s).
xxx xxx xxx
V. Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition complementary
with the quality of service, subject to prior notice and public hearing. Fares shall not be
provisionally authorized without public hearing.
A. On the General Structure of Rates
1. The existing authorized fare range system of plus or minus 15 per cent for provincial buses
and jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be
replaced by an indicative or reference rate as the basis for the expanded fare range.
2. Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx xxx xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC
allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first
having filed a petition for the purpose and without the benefit of a public hearing, announced a fare increase of
twenty (20%) percent of the existing fares. Said increased fares were to be made effective on March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of bus
fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit. The
dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby
DISMISSES FOR LACK OF MERIT the petition filed in the above-entitled case. This petition in
this case was resolved with dispatch at the request of petitioner to enable it to immediately
avail of the legal remedies or options it is entitled under existing laws.
SO ORDERED.6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing
respondents from implementing the bus fare rate increase as well as the questioned orders and memorandum
circulars. This meant that provincial bus fares were rolled back to the levels duly authorized by the LTFRB
prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises for the operation
of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to
provincial bus operators to set a fare range of plus or minus fifteen (15%) percent, later increased to plus
twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without
having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment of a
presumption of public need in favor of an applicant for a proposed transport service without having to prove
public necessity, is illegal for being violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the
petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that the
petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining the reliefs
prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B.
Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant suit.
They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and establish a
presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the
Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government.
In Lamb v. Phipps,7 we ruled that judicial power is the power to hear and decide causes pending between
parties who have the right to sue in the courts of law and equity. Corollary to this provision is the principle
of locus standiof a party litigant. One who is directly affected by and whose interest is immediate and
substantial in the controversy has the standing to sue. The rule therefore requires that a party must show a
personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision
so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's remedial
powers in his behalf.8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable
injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has
shown that it has a clear legal right that was violated and continues to be violated with the enforcement of the
challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and
jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They
are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected,
not neglected nor ignored.
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush aside
this barren procedural infirmity and recognize the legal standing of the petitioner in view of the
transcendental importance of the issues raised. And this act of liberality is not without judicial precedent. As
early as theEmergency Powers Cases, this Court had exercised its discretion and waived the requirement of
proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al.,9 we ruled in the same
lines and enumerated some of the cases where the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in the
exercise of its discretion, set aside in view of the importance of the issues raised. In the
landmark Emergency Powers Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756
(Araneta
v. Angeles); G.R. No. L-3054 (Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero
v. Commissioner of Customs); and G.R. No. L-3056 (Barredo v. Commission on Elections), 84
Phil. 368 (1949)], this Court brushed aside this technicality because "the transcendental
importance to the public of these cases demands that they be settled promptly and
definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R.
No. L-2621)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is
not devoid of discretion as to whether or not it should be entertained," (Tan v. Macapagal,
43 SCRA 677, 680 [1972]) or that it "enjoys an open discretion to entertain the same or
not." [Sanidad v. COMELEC, 73 SCRA 333 (1976)].
xxx xxx xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of
Congress, and even association of planters, and
non-profit civic organizations were allowed to initiate and prosecute actions before this
court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders
of various government agencies or instrumentalities. Among such cases were those
assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity
and commutation of vacation and sick leave to Senators and Representatives and to elective
officials of both Houses of Congress (Philippine Constitution Association, Inc. v. Gimenez, 15
SCRA 479 [1965]); (b) Executive Order No. 284, issued by President Corazon C. Aquino on
 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant
secretaries to hold other government offices or positions (Civil Liberties Union v. Executive
Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056
on the holding of desynchronized elections (Osmea v. Commission on Elections, 199 SCRA
750 [1991]); (e) P.D. No. 1869 (the charter of the Philippine Amusement and Gaming
Corporation) on the ground that it is contrary to morals, public policy, and order (Basco v.
Philippine Amusement and Gaming Corp., 197 SCRA 52 [1991]); and (f) R.A. No. 6975,
establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA 290
[1992]).
Other cases where we have followed a liberal policy regarding locus standi include those
attacking the validity or legality of (a) an order allowing the importation of rice in the light
of the prohibition imposed by R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc.
v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos. 991 and 1033 insofar as they proposed
amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to
supervise, control, hold, and conduct the referendum-plebiscite on 16 October 1976
(Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square
meters of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797
[1990]); (d) the approval without hearing by the Board of Investments of the amended
application of the Bataan Petrochemical Corporation to transfer the site of its plant from
Bataan to Batangas and the validity of such transfer and the shift of feedstock from naphtha
only to naphtha and/or liquefied petroleum gas (Garcia v. Board of Investments, 177 SCRA
374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the decisions,
orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance,
Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives
Review Board exempting the National Power Corporation from indirect tax and duties
(Maceda v. Macaraig, 197 SCRA 771 [1991]); (f) the orders of the Energy Regulatory Board
of 5 and 6 December 1990 on the ground that the hearings conducted on the second
provisional increase in oil prices did not allow the petitioner substantial cross-examination;
(Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478
which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive
Secretary, 211 SCRA 219 [1992]); (h) resolutions of the Commission on Elections
concerning the apportionment, by district, of the number of elective members of
Sanggunians (De Guia vs. Commission on Elections, 208 SCRA 420 [1992]); and (i)
memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City (Pasay
Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court,
despite its unequivocal ruling that the petitioners therein had no personality to file the
petition, resolved nevertheless to pass upon the issues raised because of the far-reaching
implications of the petition. We did no less in De Guia v. COMELEC (Supra) where, although
we declared that De Guia "does not appear to have locus standi, a standing in law, a personal
or substantial interest," we brushed aside the procedural infirmity "considering the
importance of the issue involved, concerning as it does the political exercise of qualified
voters affected by the apportionment, and petitioner alleging abuse of discretion and
violation of the Constitution by respondent."
Now on the merits of the case.
On the fare range scheme.
Section 16(c) of the Public Service Act, as amended, reads:
Sec. 16. Proceedings of the Commission, upon notice and hearing. The Commission shall
have power, upon proper notice and hearing in accordance with the rules and provisions of
this Act, subject to the limitations and exceptions mentioned and saving provisions to the
contrary:
xxx xxx xxx
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules
thereof, as well as commutation, mileage kilometrage, and other special rates which shall be
imposed, observed, and followed thereafter by any public service: Provided, That the
Commission may, in its discretion, approve rates proposed by public services provisionally
and without necessity of any hearing; but it shall call a hearing thereon within thirty days
thereafter, upon publication and notice to the concerns operating in the territory
affected: Provided, further, That in case the public service equipment of an operator is used
principally or secondarily for the promotion of a private business, the net profits of said
private business shall be considered in relation with the public service of such operator for
the purpose of fixing the rates. (Emphasis ours).
xxx xxx xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission
the power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body
today, is likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section
5(c) of the said executive order authorizes LTFRB "to determine, prescribe, approve and periodically
review and adjust, reasonable fares, rates and other related charges, relative to the operation of
public land transportation services provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the
increasing complexity of modern life. As subjects for governmental regulation multiply, so does the difficulty of
administering the laws. Hence, specialization even in legislation has become necessary. Given the task of
determining sensitive and delicate matters as
route-fixing and rate-making for the transport sector, the responsible regulatory body is entrusted with the
power of subordinate legislation. With this authority, an administrative body and in this case, the LTFRB, may
implement broad policies laid down in a statute by "filling in" the details which the Legislature may neither
have time or competence to provide. However, nowhere under the aforesaid provisions of law are the
regulatory bodies, the PSC and LTFRB alike, authorized to delegate that power to a common carrier, a
transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range over
and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue delegation of
legislative authority. Potestas delegata non delegari potest. What has been delegated cannot be delegated. This
doctrine is based on the ethical principle that such a delegated power constitutes not only a right but a duty to
be performed by the delegate through the instrumentality of his own judgment and not through the
intervening mind of another.10 A further delegation of such power would indeed constitute a negation of the
duty in violation of the trust reposed in the delegate mandated to discharge it directly.11 The policy of allowing
the provincial bus operators to change and increase their fares at will would result not only to a chaotic
situation but to an anarchic state of affairs. This would leave the riding public at the mercy of transport
operators who may increase fares every hour, every day, every month or every year, whenever it pleases them
or whenever they deem it "necessary" to do so. In Panay Autobus Co. v. Philippine Railway Co.,12 where
respondent Philippine Railway Co. was granted by the Public Service Commission the authority to change its
freight rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate to the
Philippine Railway Co. the power of altering its freight rates whenever it should find it
necessary to do so in order to meet the competition of road trucks and autobuses, or to change
its freight rates at will, or to regard its present rates as maximum rates, and to fix lower rates
whenever in the opinion of the Philippine Railway Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is enough to
show that it is untenable. The Legislature has delegated to the Public Service Commission the
power of fixing the rates of public services, but it has not authorized the Public Service
Commission to delegate that power to a common carrier or other public service. The rates of
public services like the Philippine Railway Co. have been approved or fixed by the Public
Service Commission, and any change in such rates must be authorized or approved by the
Public Service Commission after they have been shown to be just and reasonable. The
public service may, of course, propose new rates, as the Philippine Railway Co. did in case
No. 31827, but it cannot lawfully make said new rates effective without the approval of the
 Public Service Commission, and the Public Service Commission itself cannot authorize a
public service to enforce new rates without the prior approval of said rates by the
commission. The commission must approve new rates when they are submitted to it, if the
evidence shows them to be just and reasonable, otherwise it must disapprove them. Clearly,
the commission cannot determine in advance whether or not the new rates of the Philippine
Railway Co. will be just and reasonable, because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to change its
freight rates at will. It may change them every day or every hour, whenever it deems it
necessary to do so in order to meet competition or whenever in its opinion it would be to its
advantage. Such a procedure would create a most unsatisfactory state of affairs and largely
defeat the purposes of the public service law.13 (Emphasis ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport operators
will be authorized to impose and collect an additional amount equivalent to 20% over and above the
authorized fare over a period of time, this will unduly prejudice a commuter who will be made to pay a fare
that has been computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a
thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to
impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per
kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavos) is equivalent to P0.42
centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per
kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is
P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over and
above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47 authorized LTFRB
rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subjected, not only to a
double fare adjustment but to a compounding fare as well. On their part, transport operators shall enjoy a
bigger chunk of the pie. Aside from fare increase applied for, they can still collect an additional amount by
virtue of the authorized fare range. Mathematically, the situation translates into the following:
Year** LTFRB authorized Fare Range Fare to be
rate*** collected per
kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function that
requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and reasonable
rate acceptable to both the public utility and the public. Several factors, in fact, have to be taken into
consideration before a balance could be achieved. A rate should not be confiscatory as would place an operator
in a situation where he will continue to operate at a loss. Hence, the rate should enable public utilities to
generate revenues sufficient to cover operational costs and provide reasonable return on the investments. On
the other hand, a rate which is too high becomes discriminatory. It is contrary to public interest. A rate,
therefore, must be reasonable and fair and must be affordable to the end user who will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of
commuters, government must not relinquish this important function in favor of those who would benefit and
profit from the industry. Neither should the requisite notice and hearing be done away with. The people,
represented by reputable oppositors, deserve to be given full opportunity to be heard in their opposition to
any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory
arrangement for all parties involved. To do away with such a procedure and allow just one party, an interested
party at that, to determine what the rate should be, will undermine the right of the other parties to due
process. The purpose of a hearing is precisely to determine what a just and reasonable rate is.15 Discarding
such procedural and constitutional right is certainly inimical to our fundamental law and to public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land
transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service Act,
as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the applicant
must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock company
constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or paid-up
capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially capable of
undertaking the proposed service and meeting the responsibilities incident to its operation; and (iii) the
applicant must prove that the operation of the public service proposed and the authorization to do business will
promote the public interest in a proper and suitable manner. It is understood that there must be proper notice
and hearing before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No. 92-
009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC. The
guidelines states:
The issuance of a Certificate of Public Convenience is determined by public need. The
presumption of public need for a service shall be deemed in favor of the applicant, while the
burden of proving that there is no need for the proposed service shall be the
oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public
Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and
hearing that the operation of the public service proposed will promote public interest in a proper and suitable
manner. On the contrary, the policy guideline states that the presumption of public need for a public service
shall be deemed in favor of the applicant. In case of conflict between a statute and an administrative order, the
former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public
need.16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists when
the proposed facility or service meets a reasonable want of the public and supply a need which the existing
facilities do not adequately supply. The existence or
non-existence of public convenience and necessity is therefore a question of fact that must be established by
evidence, real and/or testimonial; empirical data; statistics and such other means necessary, in a public
hearing conducted for that purpose. The object and purpose of such procedure, among other things, is to look
out for, and protect, the interests of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress hearing
and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the
public.17 Basic convenience is the primary consideration for which a CPC is issued, and that fact alone must be
consistently borne in mind. Also, existing operators in subject routes must be given an opportunity to offer
proof and oppose the application. Therefore, an applicant must, at all times, be required to prove his capacity
and capability to furnish the service which he has undertaken to
render. 18 And all this will be possible only if a public hearing were conducted for that purpose.
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates the
proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions of
the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another
disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of
Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by law
to promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the present
circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an abdication by
the government of its inherent right to exercise police power, that is, the right of government to regulate
public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the
transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum
Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the
said administrative issuances being amendatory and violative of the Public Service Act and the Rules of Court.
Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent PBOAP on
March 16, 1994 without the benefit of a petition and a public hearing is null and void and of no force and effect.
No grave abuse of discretion however was committed in the issuance of DOTC Memorandum Order No. 90-395
and DOTC Memorandum dated October 8, 1992, the same being merely internal communications between
administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum
Circular
No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby DECLARED contrary
to law and invalid insofar as they affect provisions therein (a) delegating to provincial bus and jeepney
operators the authority to increase or decrease the duly prescribed transportation fares; and (b) creating a
presumption of public need for a service in favor of the applicant for a certificate of public convenience and
placing the burden of proving that there is no need for the proposed service to the oppositor.
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it enjoined
the bus fare rate increase granted under the provisions of the aforementioned administrative circulars,
memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.
SECOND DIVISION
[G.R. No. 119528. March 26, 1997]
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL
AIRWAYS, INC., respondents.
DECISION
TORRES, JR., J.:
This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to
prohibit respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's
Application for the issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a
temporary operating permit issued by the Civil Aeronautics Board in favor of Grand International Airways
(GrandAir, for brevity) allowing the same to engage in scheduled domestic air transportation services,
particularly the Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact
that GrandAir does not possess a legislative franchise authorizing it to engage in air transportation service
within the Philippines or elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate of
Public Convenience or Necessity by the respondent Board, as mandated under Section 11, Article XII of the
Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for
the issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit, following
the Court's pronouncements in the case of Albano vs. Reyes,[1] as restated by the Court of Appeals in Avia
Filipinas International vs. Civil Aeronautics Board[2] and Silangan Airways, Inc. vs. Grand International
Airways, Inc., and the Hon. Civil Aeronautics Board.[3]
On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and
Necessity with the Board, which application was docketed as CAB Case No. EP-12711.[4] Accordingly, the Chief
Hearing Officer of the CAB issued a Notice of Hearing setting the application for initial hearing on December
16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to all scheduled
Philippine Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and requested for the
issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air
transport services, filed an Opposition to the application for a Certificate of Public Convenience and Necessity
on December 16, 1995 on the following grounds:
"A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise
to operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a computation of trunkline, secondary and
rural available seat kilometers (ASK) which shall always be maintained at a monthly level at least 5% and 20%
of the ASK offered into and out of the proposed base of operations for rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss statements, projected balance sheet,
insurance coverage, list of personnel, list of spare parts inventory, tariff structure, documents supportive of
financial capacity, route flight schedule, contracts on facilities (hangars, maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection clause of the constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of R.A.
776."[5]
At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to
hear the application because GrandAir did not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition.
Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first
obtained a franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs. CAB, CA
G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific
power and duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED."
Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a
temporary permit maintaining that:
"1. The applicant does not possess the required fitness and capability of operating the services applied for
under RA 776; and,
2. Applicant has failed to prove that there is clear and urgent public need for the services applied for." [6]
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a
Temporary Operating Permit in favor of Grand Air[7] for a period of three months, i.e., from December 22, 1994
to March 22, 1994. Petitioner moved for the reconsideration of the issuance of the Temporary Operating
Permit on January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on February 2, 1995. [8] In
the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's application.
"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows:
'(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter, modify,
cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative, any
temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however; that in the
case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the
Philippines."
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held that
the CAB can even on its own initiative, grant a TOP even before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30, 1991, held
that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public
Convenience and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative franchise,
citing therein as basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:
a) Franchises by Congress are not required before each and every public utility may operate when the law has
granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain
public utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or other
form of authorization for the operation of a public utility does not necessarily imply that only Congress has the
power to grant such authorization since our statute books are replete with laws granting specified agencies in
the Executive Branch the power to issue such authorization for certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a
minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently serviced
by only one (1) operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05,
1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways, Inc.
alleging among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of
the foregoing and considering that the grounds relied upon by the movant are not indubitable."
On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period
of six (6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking
cognizance of GrandAirs application for the issuance of a Certificate of Public Convenience and Necessity, and
in issuing a temporary operating permit in the meantime, since GrandAir has not been granted and does not
possess a legislative franchise to engage in scheduled domestic air transportation. A legislative franchise is
necessary before anyone may engage in air transport services, and a franchise may only be granted by
Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII,[9] and Section
1, Article VI,[10] of the Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative franchise before the Civil
Aeronautics Board (CAB) may issue a Certificate of Public Convenience and Necessity and/or permit to engage
in air commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional franchise, the House
Committee on Corporations and Franchises contended that under the present Constitution, the CAB may not
issue the abovestated certificate or permit, unless the individual or entity concerned possesses a legislative
franchise. You believe otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is
explicitly empowered to issue operating permits or certificates of public convenience and necessity and that
this statutory provision is not inconsistent with the current charter.
We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion
rendered in favor of your predecessor-in-office, this Department observed that,-
xxx it is useful to note the distinction between the franchise to operate and a permit to
commence operation. The former is sovereign and legislative in nature; it can be
conferred only by the lawmaking authority (17 W and P, pp. 691-697). The latter is
administrative and regulatory in character (In re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted by an administrative agency, such as the
Public Service Commission [now Board of Transportation], in the case of land
transportation, and the Civil Aeronautics Board, in case of air services. While a
legislative franchise is a pre-requisite to a grant of a certificate of public convenience
and necessity to an airline company, such franchise alone cannot constitute the
authority to commence operations, inasmuch as there are still matters relevant to such
operations which are not determined in the franchise, like rates, schedules and routes,
and which matters are resolved in the process of issuance of permit by the
administrative. (Secretary of Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization issued
by the appropriate governmental agency for the operation of public services for which a franchise is required
by law (Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the
Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business
activity or enterprise of a public nature, whereas a certificate of public convenience and necessity is a
regulatory measure which constitutes the franchises authority to commence operations. It is thus logical that
the grant of the former should precedethe latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act
776, which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil
Aeronautics Board, and Silangan Airways, Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate
of Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air transport
operator who does not possess a legislative franchise to operate as such. Relying on the Court's
pronouncement in Albano vs. Reyes (supra), the Court of Appeals upheld the authority of the Board to issue
such authority, even in the absence of a legislative franchise, which authority is derived from Section 10 of
Republic Act 776, as amended by P.D. 1462.[11]
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating
Permit. This rule has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board,
promulgated on June 13, 1968.[12] The Board is expressly authorized by Republic Act 776 to issue a temporary
operating permit or Certificate of Public Convenience and Necessity, and nothing contained in the said law
negates the power to issue said permit before the completion of the applicant's evidence and that of the
oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own
initiative" strongly suggests the power to exercise said authority, even before the presentation of said evidence
has begun. Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the
absence of the same does not affect the jurisdiction of the Board to hear the application, but tolls only upon the
ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a prerogative of the
legislature, since Congress is that branch of government vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its
properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly,
the act of the state."[13]
The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the
authority to authorize the operation of domestic air transport services to the respondent Board, such that
Congressional mandate for the approval of such authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the
operation of certain public utilities. With the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency towards the delegation of greater powers by the legislature, and towards the
approval of the practice by the courts.[14] It is generally recognized that a franchise may be derived indirectly
from the state through a duly designated agency, and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than those of a legislative nature. [15] In pursuance of this, it
has been held that privileges conferred by grant by local authorities as agents for the state constitute as much
a legislative franchise as though the grant had been made by an act of the Legislature.[16]
The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate
and control the operation of public services under reasonable rules and regulations, and as a general rule,
courts will not interfere with the exercise of that discretion when it is just and reasonable and founded upon a
legal right.[17]
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent
issuances governing the Philippine Ports Authority,[18] proves that the PPA is empowered to undertake by
itself the operation and management of the Manila International Container Terminal, or to authorize its
operation and management by another by contract or other means, at its option. The latter power having been
delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and
manage the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a
Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport
operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed by
the law. Such requirements were enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an
indispensable requirement for an entity to operate as a domestic air transport operator. Although Section 11
of Article XII recognizes Congress' control over any franchise, certificate or authority to operate a public utility,
it does not mean Congress has exclusive authority to issue the same. Franchises issued by Congress are not
required before each and every public utility may operate.[19] In many instances, Congress has seen it fit to
delegate this function to government agencies, specialized particularly in their respective areas of public
service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to
regulate the issuance of a license to operate domestic air transport services:
SECTION 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have
the power to regulate the economic aspect of air transportation, and shall have general supervision and
regulation of, the jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air
freight forwarders as well as their property rights, equipment, facilities and franchise, insofar as may be
necessary for the purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify,
cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any
Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided however, That in
the case of foreign air carriers, the permit shall be issued with the approval of the President of the Republic of
the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public
Convenience and Necessity", this, according to petitioner, means that a legislative franchise is an absolute
requirement. It cites a number of authorities supporting the view that a Certificate of Public Convenience and SECTION 12. Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty or
Necessity is issued to a public service for which a franchise is required by law, as distinguished from a treaties, a permit authorizing a person to engage in domestic air commerce and/or air transportation shall be
"Certificate of Public Convenience" which is an authorization issued for the operation of public services for issued only to citizens of the Philippines.[24]
which no franchise, either municipal or legislative, is required by law.[20] SECTION 21. Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the
This submission relies on the premise that the authority to issue a certificate of public convenience and service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform such
necessity is a regulatory measure separate and distinct from the authority to grant a franchise for the service properly in conformity with the provisions of this Act and the rules, regulations, and requirements
operation of the public utility subject of this particular case, which is exclusively lodged by petitioner in issued thereunder; and (2) that such service is required by the public convenience and necessity; otherwise
Congress. the application shall be denied.
We do not agree with the petitioner. Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience
Many and varied are the definitions of certificates of public convenience which courts and legal writers and Necessity had been established to ensure the weeding out of those entities that are not deserving of public
have drafted. Some statutes use the terms "convenience and necessity" while others use only the words "public service.[25]
convenience." The terms "convenience and necessity", if used together in a statute, are usually held not to be In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the
separable, but are construed together. Both words modify each other and must be construed together. The issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise of its
word 'necessity' is so connected, not as an additional requirement but to modify and qualify what might jurisdiction.
otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant
when the proposed facility will meet a reasonable want of the public and supply a need which the existing petition for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing
facilities do not adequately afford. It does not mean or require an actual physical necessity or an indispensable the application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public
thing.[21] Convenience and Necessity.
"The terms 'convenience' and 'necessity' are to be construed together, although they are not synonymous, and SO ORDERED.
effect must be given both. The convenience of the public must not be circumscribed by according to the word Regalado (Chairman), and Puno, JJ., concur.
'necessity' its strict meaning or an essential requisites."[22] Romero, J., no part. Related to counsel.
The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization Mendoza, J., no part. Relative in management of party.
to a public service entity to operate, does not in any way modify the nature of such certification, or the
requirements for the issuance of the same. It is the law which determines the requisites for the issuance of
such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the operation of domestic
transport services, has delegated to the said body the authority to determine the capability and competence of
a prospective domestic air transport operator to engage in such venture. This is not an instance of
transforming the respondent Board into a mini-legislative body, with unbridled authority to choose who
should be given authority to operate domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving commission"
that will give the delegate unlimited legislative authority. It must not be a delegation "running riot" and "not
canalized with banks that keep it from overflowing." Otherwise, the delegation is in legal effect an abdication
of legislative authority, a total surrender by the legislature of its prerogatives in favor of the delegate." [23]
Congress, in this instance, has set specific limitations on how such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
"SECTION 4. Declaration of policies. In the exercise and performance of its powers and duties under this Act,
the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among other
things, as being in the public interest, and in accordance with the public convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system properly adapted to the present and
future of foreign and domestic commerce of the Philippines, of the Postal Service and of the National Defense;
(c) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages
of, assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to
improve the relations between, and coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without
unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent necessary to assure the sound development of an air
transportation system properly adapted to the need of the foreign and domestic commerce of the Philippines,
of the Postal Service, and of the National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine the competency of a
prospective operator to engage in the public service of air transportation.